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THE PRINCIPLES OF WEALTH 
AND WELFARE 




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THE PRINCIPLES OF WEALTH 
AND WELFARE 

ECONOMICS FOR HIGH SCHOOLS 



BY 



CHARLES LEE RAPER, Ph.D. 

PROFESSOR OF ECONOMICS, UNIVERSITY OF 
NORTH CAROLINA 



THE MACMILLAN COMPANY 

LONDON : MACMILLAN & CO., Ltd. 
1906 

All rights reserved 



ri ^•' 



LIBRARY of CONGRESS 
Two CoDies Received 

JUL 9 1906 

yriffht Entry . 

'^ssa;^xxc. No. 
COPY b; 







Copyright, 1906, 
By the MACMILLAN COMPANY. 



Set up and electrotyped. Published July, 1906, 



liTorfajooli ^legg 

J. S. Gushing & Co. — Berwick & Smith Co. 

Norwood, Mass., U.S.A. 



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PREFACE 

No claim is made that this little book is 
exhaustive. It is only a simple and elementary 
discussion of the more important principles 
which are involved in the consumption, pro- 
duction, and distribution of wealth. And 
wealth is everywhere thought of as a means 
to an end — a means to human welfare in all 
of its manifold aspects. 

The author desires to acknowledge his in- 
debtedness to Professor E. K. Graham, of the 
University of North Carolina, for many valu- 
able suggestions as to the statement of prin- 
ciples and facts. To his wife, who has revised 
the manuscript, he is under many obligations. 

CHARLES LEE RAPER. 
Chapel Hill, 
North Carolina, 
April, 1906. 



Vll 



CONTENTS 



PAGE 



INTRODUCTION i 

SECTION I 
THE CONSUMPTION OF WEALTH — WELFARE 

CHAPTER 

I. Wants and their Satiation . . . .13 
II. Demand, Value, Price 35 

SECTION II 

THE PRODUCTION OF WEALTH —WELFARE 

A. Introduction 
I. Production: Its Nature and Agents . 'Si 

B. Agents of Productio7t 

II. Labor a Producing Agent .... 57 

III. Land a Producing Agent 76 

IV. Capital a Producing Agent .... 92 
V. Business Management a Producing Agent . 104 

C. Aspects or Groups of Production 
VI. Agriculture and Mining — Producers of 

Wealth 128 

VII. Manufacture — A Producer of Wealth . 134 
VIII. Transportation — A Producer of Wealth . 139 
IX. Exchange : Commerce — A Producer of 

Wealth 149 

ix 



X CONTENTS 

CHAPTER PAGE 

X. Exchange: Money a Standard of Value — 

A Producer of Wealth . . . .161 
XI. Exchange: Money a Medium of Exchange — 

A Producer of Wealth . . . .173 
XII. The State — A Producer of Wealth . . 188 

SECTION III 

CONSUMPTION AND PRODUCTION; MAR- 
KET PRICE — WELFARE 

I. Demand and Supply; Market Value and 

Price ........ 209 

SECTION IV 

THE PRODUCTION AND DISTRIBUTION OF 
WEALTH — WELFARE 



I. Distribution: Its Nature and Standard 
II. Distribution of Wealth and Wages 
HI. Distribution of Wealth and Wages; Trades 

Unions and Factory Acts 
IV. Distribution of Wealth and Rent 
V. Distribution of Wealth and Interest . 
VI. Distribution of Wealth : Pay of Business 
Management and Profits 
(a) Management and its Pay 
(d) Management and Profits 



(c) Monopoly Management ; its Pay and Profits 301 



(d) Legislation and Monopoly Management 
VII. Distribution of Wealth: the State 



227 
237 

250 
275 
286 

293 
293 

297 



309 
319 



APPENDIX 

Course of Readings 329 

INDEX 331 



THE PRINCIPLES OF WEALTH 
AND WELFARE 



INTRODUCTION 

The Making of a Living a Great Force in Life ; 
Economics. — Religion and the making of a liv- 
ing, to use popular expressions to describe great 
and complex forces, enter into the life of every 
human being, in some form or other and to 
some degree or other. They are all-pervading 
forces. They are always at work, quiet and 
unobserved, or violent and manifest to all. And 
these two sets of forces, though in many respects 
seemingly opposites, can never be entirely sepa- 
rated. They are working together in the life of 
every human being, and at every moment of his 
life. Whether or not the economic set of these 
mighty forces is greater and more important than 
the religious, it is certainly great and funda- 
mental in human life. It is at the basis of all 
human effort ; it surrounds every human being 
from his cradle to his grave. 

Economics : a Social Science of Business Motives 
and Activities. — A study of the forces involved 
in the making of a living — in the consumption 
and production of wealth, — a study of these 
universal and all-important forces we call eco- 
nomics. As in wealth consuming, and especially 



2 PRINCIPLES OF WEALTH AND WELFARE 

in wealth producing, no man lives entirely or 
even largely to himself, so economics does not 
deal with individuals as individuals solely, but 
with individuals as parts of a larger body called 
society. It is a systematic study of the busi- 
ness activities of society. Neither does eco- 
nomics deal with the wonderful forces of nature 
in themselves, but only with these great forces 
as they are by human effort transformed into 
various articles for man's consumption, or as 
these great forces aid as motive powers in the 
production of the manifold forms of wealth. A 
study of business activities does not include the 
physical sciences ; it does not include the great 
sciences of physics, chemistry, and biology. Nor 
does this study include all the social sciences. 
It does not deal with the political and social 
forces of life in themselves. These forces are 
in themselves distinct from those of the business 
world. Economics deals with those social forces 
whose standard of measurement is money, while 
government, law, and sociology are the sciences 
of those social forces, the yardstick of whose 
measurement is, or at least should be, something 
very different from money. We have said that 
religion and the making of a living can never 
be entirely separated. Likewise the economic 
can never be divorced from the political, social, 
and intellectual aspects of life. All other as- 



INTRODUCTION 3 

pects of human life have a basis in the economic, 
and this is in turn fundamentally and vitally in- 
fluenced by the others. 

Economics deals with the Production and Con- 
sumption of Wealth. — The economic or busi- 
ness world has within itself something of activ- 
ity on the part of the individual, — an exercise 
which brings pleasure to his body and mind. 
It has also something of effort, which brings 
discomfort and even pain to the individual. 
This business realm is ever moving and throb- 
bing, is like the sea with its incessant floods 
and ebbs, and is full of joys and pains com- 
mingled in different proportions. This realm 
is ever consuming wealth in its manifold forms 
and qualities, and is ever producing these forms 
and qualities. In its consumption it uses mate- 
rial forces and forms, which in popular speech 
we call goods, to satisfy or help to satisfy 
human desires and wants. These goods which 
are the results of human activity and effort — 
the products of wealth producing — do not, can- 
not, satisfy all the desires and wants of man. 
They can satiate the lower or more material 
wants, and are an important means in satisfy- 
ing the higher wants. They do not satiate the 
purely religious, moral, and intellectual desires, 
but they are the greatest means toward the sati- 
ation of these desires. 



PRINCIPLES OF WEALTH AND WELFARE 



Wealth, what is it? A Means to Man's Welfare. 

— These goods, which we call wealth, consist of 
material goods — lands, houses, tools, machines, 
live stock, raw material, finished goods, bonds, 
stocks, money, etc., — and also of certain imma- 
terial goods. A man's business or professional 
reputation and connections, and the organization 
of his business activities, are certainly not mate- 
rial goods in the strictest sense, but they are 
nevertheless thought of as a part of his wealth. 
This wealth in none of its forms should be con- 
sidered as the end of activity and effort, but 
only as a means to an end — the satiation of 
human wants. To consider wealth as an end 
in itself is to hold up a low standard of reli- 
gion, to worship a temporary and material form 
and force, and is to place man beneath material 
and even sordid things. Welfare in all its mani- 
fold aspects should be the end of all economic 
effort, as well as the end of all economic satis- 
factions and joys.^ 

^ The economic realm is 
composed of man and wealth, 
and the relations of these may 
be illustrated by the accompany- 
ing diagram. 

Let the square represent 
the economic realm. Man and 
wealth, the two objects within 
this realm, while distinct from 
each other, are in very close 
and vital relations. Man in- 




INTRODUCTION 5 

Economic Motives and Acts, of the Individual 
and Society, to produce Wealth and satiate 
Wants. — In this economic realm every indi- 
vidual by virtue of his very nature and sur- 
roundings has desires and wants, both of his 
body and mind. And these wants can be sati- 
ated, more or less, by wealth. It is wealth 
that has the power to satiate these wants or to 
contribute to their satiation. It is wealth that 
is the greatest instrument in the hands of man, 
that is a universal and powerful means which 
enables him to supply his wants, whether they 
be the most simple or the most complex. Not 
only does every individual have desires the sati- 
ation of which is more or less dependent upon 
wealth, but he also puts forth, in some degree, 
activity and effort in order that this powerful 
instrument may become his own possession and 
may be for his own use and pleasure. 

Man, his wants, and the process of their satia- 
tion, are the center of all economic forces and 
of all economic thought. His wants may be 
few and most simple in their nature, or they 

eludes common labor and managing labor; and this labor is 
immaterial^ subjective (belonging to the very being of man), 
exchangeable (in connection with man), and useful. Though 
not included in wealth, this labor is a great agent in its pro- 
duction. Wealth, on the other hand, consists of those goods 
which can satisfy man's wants and which are the result of man's 
efforts; and these goods are 7naterial {\2xgQ\y so) , objective (ex- 
ternal to man), exchangeable, and useful. 



6 PRINCIPLES OF WEALTH AND WELFARE 

may be many and most complex. They may 
be those of the strong adult, of the infirm, of 
the child, or of society in its various organiza- 
tions. To satisfy all of these desires and wants, 
manifold as they are in both form and intensity, 
means the putting forth of great activity and 
effort, not only on the part of the individual, 
but also on the part of society. The indi- 
vidual must produce wealth with which to sat- 
isfy his own wants and also the wants of those 
who by virtue of age or weakness must needs 
depend upon him. He must produce wealth 
for the use and pleasure of his family, his church, 
his clubs, and his educational, governmental, 
and charitable institutions. In this production 
of wealth, moreover, the individual cannot, at 
least should not, transgress upon the rights 
and privileges of other individuals. Every eco- 
nomic motive and act on the part of the indi- 
vidual should take into consideration the rights 
of a larger body called society, in which every 
individual lives and puts forth his efforts; wel- 
fare to society, as well as to the individual, 
should be the ultimate aim of every economic 
act and should be included in every economic 
motive. And it is the first duty of the state 
to create and maintain conditions which are 
highly favorable to all producers and consumers 
of wealth. 



INTRODUCTION y 

Economic Institutions and Conditions largely 
the Results of the Past. — Ideas and processes 
which are entirely new seldom come into any 
aspect of life, and when they come they are 
more or less modifications of older ones. The 
seemingly new things, which come into mod- 
ern life with such frequency and at times with 
such great popular sensations, are in reality new 
only in their outward appearances, or at most 
are new only in a few of their parts. Of the 
great human institutions of to-day few indeed 
are of very recent origin, while many of them 
reach back for their foundation into times long 
since passed. 

Modern democracy, of which we hear so 
much, and to which so many of us offer our 
devotions, is old in thought and even in practice. 
Many of our religious ideas and processes have 
come down to us from the far-away Hebrews, 
while many of our intellectual forms and pro- 
cesses were worked out by the ancient Greeks. 
Beyond a doubt this is more or less a fact of 
the economic aspects of modern life. Many of 
our present institutions in the realm of business 
activity go back for their basis to the seven- 
teenth and eighteenth centuries, and not a few 
of them to a period much earlier. In fact, 
most of the economic forces of to-day are as old 
as mankind ; they are not only universal but 



8 PRINCIPLES OF WEALTH AND WELFARE 

also everlasting. The agriculturist tills the 
soil. By means of his own labor and certain 
forces of nature he works upon other forces of 
nature in order that he may produce wealth 
with which to satisfy his wants ; and this pro- 
cess is as old as civilized man. The idea has 
not changed, though the methods and imple- 
ments of tillage have changed, and in recent 
times with wonderful rapidity and results. The 
idea of transforming some of the most elemen- 
tary forms of wealth, as for instance raw wool, 
into the highest and most delicate forms — into 
the most beautiful fabrics of clothing — is old, 
though the methods of such transformation 
have seen marvelous changes, especially within 
the last century. In our enthusiasm for ideas 
and things which are modern we allow our- 
selves to believe that the elements, as well as 
the external forms, of our present system of 
transportation are new, though in reality they 
are as old as history. The idea of transporting 
goods from one place to another, by water or 
overland, by some method or other, is, to say the 
least, very old. The merchant, acting as a 
middleman in the exchange of economic prod- 
ucts, was as well known to the ancient Jews as 
was their famous temple dedicated to Jehovah. 
The Policy of the State toward the IndividuaPs 
Economic Acts ; in Part Ancient. — Many of the 



INTRODUCTION g 

fundamental ideas of our government, religion, 
intellectual processes, and economic efforts are 
indeed old in their origin. And the policy of 
society toward the individual producer of wealth 
is also in its essential features of very ancient 
origin. The state, which more or less represents 
the larger body of individuals called society, has 
always taken some part in the production of 
wealth and welfare. At one time it has allowed 
the individual great freedom in his business 
activities ; at another time it has not only regu- 
lated the individual's activities, but has also 
carried on in itself certain economic enterprises. 
Of individual economic freedom the man of the 
present possesses much more than did the pro- 
ducer of wealth in the ancient or mediaeval 
period. The chief characteristic of the modern 
individual as compared with the wealth producer 
of old Rome or mediaeval England is perhaps 
his freedom, the amount of liberty which the 
state permits him to enjoy in his economic life. 
This he prizes as his choicest treasure. 

This remarkable feature of modern life did 
not, however, come into being suddenly, or even 
within a short time ; it is the result of many 
forces working together through a long period. 
American industrial or business life, of which 
we are a part and of which we think so highly, 
is by no means a creation solely of the 



10 PRINCIPLES OF WEALTH AND WELFARE 

American people ; much of it came to us from our 
motherland, England, and from the continent 
of Europe. Our present wonderful economic 
life is no new creation ; it is the result of a long 
line of marvelous development. It is the result 
of many ideas and forces which have worked 
together through centuries and centuries in 
England and Europe, and which have been 
profoundly influenced by the wonderful natural 
forces and environment of our own location, as 
well as by the unprecedented freedom which the 
individual has enjoyed in government, religious 
dogmas, and economic effort. 

The Permanent Economic Forces and Principles 
and the Changing Forms in which they Work. — 
We must now bring our introductory words 
to a close and consider in detail the forces and 
principles of the consumption of wealth, and of 
its production and distribution. We now come 
to examine the body, blood, and brain of the 
economic life of to-day. In our examination 
we shall discover ideas and forces which, though 
pulsating with great vigor, are nevertheless as 
old as mankind. We shall also discover that 
these forces and principles are now embodied in 
new and strange forms, and that they are at work 
upon a scale never dreamed of one hundred 
years ago. To the permanent and vital parts ^ 
the blood and brain of economic life, let us 



INTRODUCTION 1 1 

give our most devoted attention. The forms 
of their embodiment^ and the degree to which 
they work in different places and at different 
times, are largely temporary and shall take a 
second place in our considerations and devo- 
tions. 

QUESTIONS 

(i) How great a factor in your life is the making of a 
living ? 

(2) What is economics? Wherein is it different from 
law? 

(3) What is wealth? How should it always be looked 
upon? 

(4) What is the aim of all economic motives and acts ? 

(5) Are the principles of business life always the same 
under all conditions ? 



SECTION I 

THE CONSUMPTION OF WEALTH — WELFARE 

CHAPTER I 

WANTS AND THEIR SATIATION 

Nature acts upon Man ; Wants. — The won- 
derful being, man, his wants, and the process of 
their satiation are, as we have said, the center 
of all economic reasoning and action. They 
are at the basis of all wealth consuming and 
producing; they are the fundamental ideas in 
human welfare. Man, though in some instances 
a marvelously refined and spiritualized being, 
is himself largely made up of material forces, 
and he is throughout his life surrounded by 
nature and her forces. These forces are ever, 
as long as he lives, acting upon him. They 
cause him to be like a furnace the fires of which 
must from day to day be fed. They create in 
him feelings and desires for something which 
has the power to satiate his cravings ; the power 
to supply to nature the fuel for which she is 
ever calling. These desires of man create in 
him wants, and these wants are of all grades 

13 



14 PRINCIPLES OF WEALTH AND WELFARE 

and degrees. They range from the smallest 
and simplest to the highest and most complex, 
and from the most material to the most intel- 
lectual and spiritual. His wants continually 
and loudly call for something, in some form or 
other, that can relieve the demands which 
nature incessantly makes upon him, and that 
can bring to his wants at least partial satiation. 
As man's desires and wants are largely created 
by natural forces, so his demands are supplied 
largely by material forces, by that which in 
popular language we call forms of wealth. 

Society acts upon Man ; Wants. — Nature 
is, however, not the only force which surrounds 
the individual and which creates within him 
wants and demands for wealth. The individual, 
as we have said, lives with other individuals— 
in a large and complicated body called society 
— and is surrounded throughout his life by the 
forces of this society. These forces, as well as 
those of nature, not only surround him but also 
make deep and lasting impressions upon him. 
They give shape and intensity to his desires and 
wants ; they, in fact, have very much to do in 
creating his wants. Ask the man or woman 
who lives in the great cities, in which society 
brings individuals into close and vital contact, 
in which the social forces are most strongly felt, 
why they have certain wants for food and cloth- 



WANTS AND THEIR SATIATION 15 

ing, and they will invariably tell you that fashion 
or style, which is entirely a social force, in a 
large measure creates their wants. Human 
wants are, therefore, the results of the powerful 
forces of nature and society, and this is true of all 
classes of men. In the lower ranks of society, 
for the mass of men in fact, the forces of nature 
are the more important in creating and giving 
shape to wants, while for the higher classes the 
forces of society are the all-powerful ones. 

Along with nature and society, there is an- 
other set of forces which has much influence 
upon the desires and wants of man, both in the 
individual and in the collective body. The 
tendencies which are handed down from father 
to son, the physical and mental inheritances 
of the individual and the community, have 
much to do in creating economic wants, cer- 
tainly in creating particular forms and degrees 
of these wants. Economic man is always sur- 
rounded by many inherited and traditional 
forces, as well as by natural and social environ- 
ment. The forms of foods and houses, for in- 
stance, which the individual calls for may, in 
many cases, be traced to the wants and demands 
of his ancestors. 

Classes of Wants. — As we have said, the 
wants of man are of all grades and degrees of 
intensity. This fact, however, does not prevent 



1 6 PRINCIPLES OF WEALTH AND WELFARE 

US from making a general classification of 
them, and in our discussions we shall treat of 
them under the following heads : living wants, 
developmental wants, and governmental wants, 
[a) Living Wants, by Nature and Society, — 
The first and most important of these classes 
of wants in all ranks of society is that for living, 
— for food, clothing, and shelter. These wants 
are universal ; they are in some variety and in- 
tensity in the lowest type of the American 
negro, as well as in the highest and greatest 
Anglo-Saxon. In one man the desire for food 
is merely for subsistence. He cares nothing 
for a variety of food, or for dainty forms of it. 
Let us consider an illustration. Many a negro 
in the Southern states has his desire for food 
satiated when he has eaten, in great quantities 
at times, of hog meat and corn bread, both 
cooked in the simplest way. In another in- 
dividual the want for food, while perhaps not 
so intense, is satiated only by a great variety 
of meats and breads, prepared in many different 
ways. The wants for food, therefore, cover the 
widest imaginable range, and this is equally a 
characteristic of the wants for clothing and 
shelter. The simplest garment that can cover 
the body, and the smallest and poorest tent or 
hut that can afford protection from the rains, 
winds, and snows, satiate the desires of many 



WANTS AND THEIR SATIATION 17 

a man for clothing and shelter. There are, 
however, many individuals whose desire for 
clothing can only be satiated by the most elabo- 
rate and artistically made dress, and whose 
wants for shelter demand the most extensive 
and magnificent palaces. 

In any of these wants for living there is, as 
a rule, a certain element which nature creates 
and also one which society produces. The 
wants which nature creates are few and simple, 
yet at times most intense. The wants produced 
by social forces are more and more complex and 
varied. Many a man has desires not only for 
the necessary elements in his foods, clothing, 
and houses, but also for a large element in each 
of these purely for the sake of variety and dis- 
tinction. When such a man becomes desirous 
of being distinguished among and even above 
his fellow-men, when he has desires to shine, so 
to speak, in the realm of society, then his wants 
become manifold and complex, and more and 
more difficult in their satiation. We can most 
easily understand the differences between the 
demands which are created by nature and those 
created by society by examining certain rep- 
resentative illustrations. The dining-table of 
New York City's highest social class must con- 
tain not only the elements of foods necessary 
for subsistence and health of body and mind. 



1 8 PRINCIPLES OF WEALTH AND WELFARE 

but also those elements which social ideas de- 
clare to be necessary for variety, distinction, 
and social sensations. The table of the small 
Georgia farmer, on the other hand, is supplied 
only with the simple necessities of life. The 
English lord must have in his house not only 
the utility of shelter from the sun, winds, and 
storms, but also sleeping chambers in great 
number and variety, halls and parlors of many 
kinds, furniture and treasures of art of a unique 
and splendid type. But the simple tenant on 
the Carolina hills must have but a one-room 
cabin. 

(b) Developmental Wants, of the Individual 
and Society. — We have seen that the living 
wants arise from the great pressure which 
nature brings upon man, and as a resultant of 
the social forces which ever surround him. 
We have assumed that all these wants create 
in man more or less of the necessity to put 
forth activity and effort. When, however, man 
begins to struggle with nature and her mighty 
forces, in order that he may produce something 
with which to satiate his wants, he recognizes 
that his own labor possesses little power as 
compared with that of mighty nature, and that 
his own simple muscular strength and energy 
can accomplish exceedingly slight results. This 
experience, though it at times brings him much 



WANTS AND THEIR SATIATION 19 

discomfort and even pain, creates in man a new 
desire and causes him to put forth greater 
effort ; it produces in him a new want — the 
want of his own development. 

This want on the part of the individual to 
be more skilled, and to possess more control 
over nature and her forces, while not so funda- 
mental and universal as the want for living — 
for existence — is nevertheless at times very 
strong and important. These developmental 
wants, like those for living, are manifold and 
of many degrees of intensity. In fact, the wants 
for development and those for living in many 
cases go hand in hand. In the want for food, 
clothing, and shelter, there is more or less of 
a want for a strong and healthy body and mind 
— a want for physical and mental development 
and culture. 

(i) This economic being called man has wants 
for his own muscular strength and skill. (2) He 
also has wants for the development of his own 
intellectual powers ; has wants for teachers, 
books, scientific apparatus, works of art and 
music. (3) This economic being has desires 
for the development of the great society in 
which he lives and puts forth his efforts. He 
has wants for more efficient highways and 
streets, whereby he may the more easily come 
in contact with his neighbors ; he has wants for 



20 PRINCIPLES OF WEALTH AND WELFARE 

boards of health, sewers, and scavengers, that 
the disease germs which threaten his hfe may 
be ehminated; he has wants for fire departments, 
with which to protect himself and his property ; 
he has wants for schools, in which he may learn 
to become a better citizen, as well as a more 
efficient producer of wealth ; he has wants for hos- 
pitals and asylums, in which his fellow-men who 
are diseased, infirm, poverty-stricken, and mad, 
may be provided for. Economic man also has 
wants for deeper and less obstructed rivers and 
harbors ; he has wants for canals, with which to 
connect the great natural bodies of water and 
make them into continuous waterways for the 
purpose of transportation; he has wants for light- 
houses and life-saving stations as an aid to the 
sailor ; he has wants for postal and railway sys- 
tems, for the transportation of intelligence, per- 
sons, and goods. (4) Economic man also has 
wants for the development of his spiritual facul- 
ties. He desires to know more of the Creator 
of himself and of his fellow-men. He desires to 
incorporate into his own heart more of love, 
faith, and charity, more of honesty and honor. 
He has wants for ministers, churches, and a 
great system of religious organizations. 

(c) Governmental Protective Wa^its. — Wants 
of this class, as well as many of those just 
mentioned, arise from the fact that man is both 



WANTS AND THEIR SATIATION 21 

an individual being and a part of a larger body 
called society. Robinson Crusoe in his com- 
plete loneliness is only an imaginary man. He 
exists nowhere in our whole economic realm. 
Economic man lives not by himself or unto 
himself, but in a community which is more or 
less densely populated. This community in its 
organization has many and varied forms, but 
in the United States it may be considered 
under the following groups : county, munici- 
pality, state, and nation. Whether of one 
type or another, this community is a living 
body and, therefore, has its desires and wants 
of various kinds and degrees. The special 
kinds and degrees of its wants depend, to an 
extent, upon the location of the community, — 
the environment given it by nature and by 
man, — and to an extent upon the economic 
conditions and wants of the individuals who 
constitute the community. Such a collective 
body we may call the state, whether it be a 
small or a large community. Many of the 
wants of this state are those for development, 
— of its own collective powers, — and these 
have already been considered. It yet remains 
to treat of those governmental wants which 
are more essentially of the nature of protection 
on the part of the state to the individual, 
(i) In the first case, there is the govern- 



22 PRINCIPLES OF WEALTH AND WELFARE 

mental want of regular and permanent bodies 
set apart for the administration of the general 
affairs of the people. Not only is there a 
want for regular legislative and executive bodies, 
(2) but there is also a want for a permanent sys- 
tem of courts and penal institutions, of jails and 
penitentiaries, in order that justice may be 
established and maintained in the actions of 
individual with individual, and of individuals 
with the collective body which we call the 
state. (3) There are likewise governmental 
wants for armies and navies, with which the 
peace and order of the community may be pre- 
served, and with which the reputation and 
integrity of the state may be maintained. 

Satiation of Wants : Consumption of Wealth. — 
All these wants, whether for living, develop- 
ment, or governmental protection, should be 
satiated. It is wealth, in some form or other, 
which has the great power to satiate these wants 
or help in their satiation. To the continuous 
and ever recurring series of wants should be 
adjusted a continuous series of supplies. If the 
simple and necessary wants for food, clothing, 
and shelter are not satiated, the individual 
weakens, becomes diseased, and dies. If the 
demands which nature makes upon him are not 
supplied from without, man's physical energy is 
soon consumed and exhausted. If the wants 



WANTS AND THEIR SATIATION 23 

for development, both of the individual and of 
society, and for governmental protection, are 
not satiated, there is lack of progress, there is 
inefficiency, there is exhaustion and disease. 
But satiate all these wants, as far as subsistence 
and efficiency both demand, and there will be 
vigor, health, prosperity, progress, and welfare. 

Consumption of Wealth a Consumption of Utili- 
ties. — Every individual being is, therefore, a 
consumer, and must be a consumer. He is 
a consumer of those forms of material things 
which can satisfy or aid in the satisfaction of 
his wants, whether they be few and simple, or 
varied and complex. That which man con- 
sumes is, however, not the substance of things 
but their utility or service, though in their con- 
sumption the form of the things is changed. 
The consumption of foods, for instance, is the 
using of the various food elements which they 
contain, and in this case the transformation 
takes place very rapidly indeed ; the bread is 
used up at one time. The consumption of a 
house, to meet the wants for shelter or home, 
is also the using of the various elements which 
it contains, and in this case the transformation 
takes place very slowly ; the house is used up 
hour by hour throughout a very long period. 
We, therefore, consume utilities, rather than 
material substances. We consume that which 



24 PRINCIPLES OF WEALTH AND WELFARE 

in popular language the world calls wealth. 
Our wants of various kinds and degrees are the 
causes of this consumption of wealth in its 
manifold shapes and qualities. These same 
wants are also the causes of the production of 
these forms of wealth — the causes of human 
activity and effort. To produce forms of wealth 
or utilities which can satiate or help to satiate 
all of our wants is the ultimate aim of the pro- 
duction of wealth in any form. 

Wealth, the Power to satiate Wants, the Result 
of Effort. — As we have said in our introductory 
remarks, economics does not deal with the 
forces of nature in themselves. It deals with 
these forces only as they aid in producing utili- 
ties which can satiate human wants. While 
wealth consists largely of material substances, 
it by no means includes all the material things 
of the world. Unless these material things 
have the power to satiate human wants, and 
unless they are produced at the cost of human 
activity and effort, they are not wealth ; they 
are not of use to man. There must be a want 
on the part of man for a material thing, and it 
must be of such a form as to be consumed by 
man before it can begin to possess the quality 
of wealth. Human effort must also be put 
forth for the acquirement of a material thing 
before it becomes wealth. Air and light are 



WANTS AND THEIR SATIATION 25 

wonderful material forces, but in most instances 
they are not wealth. They are supplied by 
mother nature in such quantities that man has 
no want for them and has to put forth no effort 
in order to obtain them. In a sense, to be sure, 
these substances are used by man. In a sense 
they are, therefore, utilities, but they are not 
forms of wealth from our point of view. 

Satiation of One Want creates a New Want ; 
Evolution in Wants. — We have said that wants 
of some form or other are ever recurring. 
When one want is satiated, another is created, 
and the new want may be of the same form 
and intensity as the old, or it may be a very 
different one, a higher or a lower one. There 
is, beyond any doubt, an evolution in human 
wants. There must, therefore, be a correspond- 
ing evolution in the process of satisfying these 
wants — in the process of producing utilities 
which have the magic power to satisfy them. 
And many of the world's most philanthropically 
disposed men are spending their noble lives in 
attempting to contribute to this evolution, in 
attempting to create new and higher human 
wants, and in attempting to discover a process 
whereby to produce utilities which can in the 
fullest and best manner satiate them. 

Consumption of Wealth; Amount and Effects. 
— As we have already said, the aim of all 



26 PRINCIPLES OF WEALTH AND WELFARE 

consumption should be welfare, to the individual 
and society alike. The amount and quality con- 
sumed by any man are, therefore, most impor- 
tant and vital problems ; the consumption of 
wealth is just as vital a problem as is its pro- 
duction. And we shall treat of this problem 
in the following paragraphs. 

From the very nature and purpose of con- 
sump tioi^^ it is clear that no injurious goods 
should be consumed. Of course, the injury 
which comes from consuming certain goods 
depends largely upon the purpose and extent 
of their consumption. The use of a certain 
amount of spirituous liquors, and for a certain 
purpose, may bring benefit, while a larger use, 
and that for the sake of dissipation, brings to 
human life weakness, disease, and even destruc- 
tion. The motive force behind consumption is 
a human want, which nature and society have 
created in the individual or in the collective 
body of men, and to satiate this want, and per- 
haps incidentally to create a higher want, should 
be the object of all consumption. Consump- 
tion is in itself not an end ; it, like wealth, 
should be only a great means to a greater end 
— human welfare or greater physical, mental, 
and moral efficiency in the individual and 
society. 

Consumption should never be separated from 



WANTS AND THEIR SATIATION 27 

the ideas and problems of production, Man 
should consume in order not only to live, but 
also to produce wealth and welfare — to put 
forth great and efficient activity and effort. To 
satisfy his normal wants, whether created by 
nature or by society, is to add a large element 
to man's welfare and pleasure. It is also to 
add to his efficiency as a producer of wealth, 
as well as to make of the individual the great- 
est possible man and citizen. The putting forth 
of activity and effort by man not only produces 
wealth, but also develops him physically, morally, 
and mentally. 

There should be no waste. The amount of 
wealth consumed determines, as we have said, 
not only the amount produced, but also the 
efficiency of the consumer as a producer. It 
likewise determines, in a large measure, the 
standard of honesty according to which the pro- 
ducer acts in all his business relations. The 
more wealth he consumes, the more of the goods 
produced he desires to keep for his part, and the 
less he is willing to allow to the other agents 
of their production. Too many, yes a thousand 
times too many, are the instances of dishonesty 
and crime in the business world because of ex- 
travagant consumption. Extravagant or care- 
less consumption by an individual, or by a group 
of society, is not only a waste of wealth, but it 



28 PRINCIPLES OF WEALTH AND WELFARE 

is also a positive harm to society, if indeed not 
to the individual who thus consumes. 

Of this waste of wealth we have to-day a vast 
amount. It seems to us that a part of the 
economic world has gone mad in its extrava- 
gant and careless consumption of wealth, in 
its consumption of utilities which in many 
cases do not really belong to the individual 
who thus consumes them. Vast amounts 
burned in the fires of dissipation, so to speak ! 
Foods and drinks of every conceivable kind 
and quality ; dress and jewelry, to the enumera- 
tion and description of which there is no end ; 
houses in many lands, in the building of which 
the four corners of the earth have been com- 
pelled to contribute a part ; horses, carriages, 
and automobiles, of every description — enor- 
mous consumption ! 

Many do not consume enough for Efficiency; 
Cannot. — There are many normal wants, and 
their degrees of intensity vary within a very wide 
range. We believe that the ideal in the satia- 
tion of these wants, of each grade and degree 
of intensity, is that of strength and efficiency. 
We believe that consumption should be in kind 
and in amount in strict proportion to the want. 
The simple wants for living — food, clothing, 
and shelter — are, or at least should be, easy of 
satiation. Here there is a call for utilities to 



WANTS AND THEIR SATIATION 29 

be consumed, not for the sake of variety or 
distinction, but for subsistence and efficient 
strength. To satiate the wants of this kind 
should not be very difficult. It does not re- 
quire a great amount of wealth. 

For some cause or other, however, many in- 
dividuals, even in these most progressive times, 
cannot satiate their simple wants, at least to 
the point of efficient strength. It may be due 
to their lack of activity and effort, because they 
produce little wealth. It may be because they 
are robbed of a part of that which they do pro- 
duce. They live in the barest way. Oftentimes 
they have not, for consumption, a sufficient 
amount of meat and bread, a sufficient quantity 
of clean and warm clothing, and a healthful 
dwelling place. They do not consume sufficient 
wealth to satiate to an economical degree their 
simplest and most fundamental wants. In the 
larger cities there are millions of people who 
do not consume sufficiently to make themselves 
and their children strong and efficient producers. 
There are even millions who do not consume 
utilities in amounts large enough to enable 
them to live out their natural lifetime. Millions 
who really are dying, though slowly, because 
their simplest and necessary wants of life, be- 
cause the simple calls which nature brings to 
them, are not satisfied ! They are dying because 



30 PRINCIPLES OF WEALTH AND WELFARE 

their wants call for good bread and meat, and 
are supplied by poor foods ; call for good rai- 
ment, and are supplied by rags ; call for clean 
and healthful houses, and are supplied by dirty 
and foul holes. And these people do not con- 
sume more wealth, as much as their simple 
wants and necessities absolutely demand, be- 
cause they have it not. 

Miserly and Wasteful Consumption ; Igno- 
rance. — There is another class of men who, 
though possessed of sufficient wealth, do not 
consume an amount large enough for efficiency 
in strength and skill. The miser consumes 
little, mainly because he loves and worships 
wealth as an end ; its possession is to him the 
end of life. Fortunately for human welfare, 
this class is a very small one. There are others 
besides the miser who have wealth, but do not 
consume enough of it. There are not a few 
men who consume less of wealth, for them- 
selves and their children, than their efficiency 
as producers really demands, and their insuffi- 
cient consumption is due in a large measure to 
their lack of intelligence and foresight. They 
do not begin to understand the great advan- 
tages, present and future, to come from a 
greater consumption. 

Ignorance and lack of sound judgment are 
also responsible for wastes in consuming wealth. 



WANTS AND THEIR SATIATION 31 

There is great waste in the foods, clothing, and 
houses, which many people use. The foods 
are prepared for the table in such a manner as 
to destroy very much of their nutriment. The 
lack of intelligence in cooking is not only 
responsible for waste in consumption, but it is 
also responsible for much of the misery, weak- 
ness, disease, and crime of mankind. The 
great prevalence of indigestion and dyspepsia 
among the Americans is, it seems to us, due in 
a large measure to their cooking. Not only is 
ignorance a cause of much waste in the foods, 
but it is also responsible for waste of wealth in 
clothing and housing. Many a man consumes, 
in attempting to satiate these wants of his, 
clothing and houses which have the minimum 
amount of real and vital use and the maximum 
amount of gaudy display. We most readily 
grant that the form of a goods, as well as the 
substance of it, is a part of its utility. We also 
readily grant that the normal social fashions 
and tastes have much to do in creating human 
wants and consequently in adding utility to 
material forms. While all this is readily 
granted, we contend that there is great extrava- 
gance and waste in many of the forms of the 
utilities which we consume. 

Wasteful and Extravagant Consumption for 
many of the Higher Wants. — Not only do we have 



32 PRINCIPLES OF WEALTH AND WELFARE 

extravagance and waste, and to an enormous 
extent, in the consumption of wealth for the 
lower wants, but we likewise have extravagance 
and waste in the consumption of wealth for the 
higher wants, for those of development and 
governmental protection. The wants of these 
classes, like those for living, are at times ab- 
normally great, and to satiate them, even though 
without waste, means an enormous consumption 
of wealth. The satiation of these wants, like 
that of the lower wants, is, however, often left 
to poor judgment, to ignorance, and at times 
to fraud. The expenditures of many of our 
bodies and instruments of social development 
and protection have become marvelously large 
as compared with the actual results accruing 
therefrom. The amount of wealth consumed 
annually by many departments in our munici- 
pal, state, and national governments, in our 
educational and religious institutions, has 
grown to gigantic proportions. That great 
results have come from this enormous consump- 
tion, we cannot deny ; many of our great devel- 
opmental and protective wants have been 
satisfied, at least in large measure. That 
there has been, on the other hand, much 
extravagance and waste in this consumption, 
every serious-minded and candid observer 
must admit. 



WANTS AND THEIR SATIATION 33 

Many of the Higher Wants not sufficiently 
Satiated ; Disease and Death. — There has also 
been a great lack of consumption for certain 
purposes and in certain cases. Many of the 
higher developmental wants have either not 
been satisfied at all, or at most have been but 
to a slight degree, and weakness, inefficiency, 
disease, and death have been the inevitable 
results of such a lack of consumption. Not a 
few are the instances in which towns and cities 
have not satiated their wants for better sewers 
and cleaner streets, have not satiated their 
wants for a more efficient enforcement of health 
regulations, have not supplied their need for 
fire departments ; and disease, death, and de- 
struction of property have come as the results 
of such a lack of consumption. Many a com- 
munity has not satiated its wants for educational 
facilities, and ignorance, inefficiency, and even 
stagnation have come not only as a result but 
also as a penalty. American history everywhere 
bears testimony to the fact that individuals and 
society have wants, and also to the fact that the 
method of their satiation may bring great wel- 
fare and progress, or misery, decay, and destruc- 
tion. We repeat that man's wants and their 
satiation are the center of all human life. 



34 PRINCIPLES OF WEALTH AND WELFARE 

QUESTIONS 

(i) Why does man have wants? 

(2) For what does man have wants? 

(3) By means of what can man satiate his wants? 

(4) How much wealth should you consume? 

(5) How are wealth consumption and welfare related ? 



CHAPTER II 

DEMAND, VALUE, PRICE 

Wants, Demand, and Value. — In our discussion 
of wants and their satiation we have very fre- 
quently used the term "demand." We have seen 
that needs and desires create wants, and that 
wants create a demand for the material thing 
which has the power to satiate them. Demand 
for utilities, therefore, follows in consequence of 
the wants for them. Without wants for a goods ^ 
there is no demand for it. Not only do wants 
create a demand for a thing, but they also 
cause activity and effort to be put forth in order 
to obtain this thing. Wants are, therefore, not 
only at the basis of the consumption of wealth, 
but also at the basis of its production. Since 
wants create a demand for a goods, they have 
much to do in giving value to this goods. The 
power to satisfy human wants is, however, not 
the only force necessary to a goods to give it 
utility or value. It must exist in nature in 

1 The term "goods" means a certain form of utilities, as, for 
instance, sugar, flour, beef, or cotton cloth. 

35 



36 PRINCIPLES OF WEALTH AND WELFARE 

quantities small enough to cause effort to be 
put forth in order to obtain it. Demand for a 
thing, therefore, in connection with the effort 
put forth to get possession of it, gives value, 
which is an expression of the utility of the 
thing. Wants create demand, and demand, 
in connection with effort, gives utility or 
value. 

Consumer's Value and Price. — Value is, how- 
ever, a very abstract economic measure, and in 
the actual business world it has a concrete ex- 
pression, a yardstick, which we call price. We 
have the consumer's price, which is the measure: 
of the value he assigns to a goods. We also 
have the producer's price, which is the measure 
of the value he assigns to a goods. In a very 
general way we may say that the wants and 
demand of the consumer for a goods are meas- 
ured by the price which he is willing to pay, 
though, as we shall later see, the same price, one 
dollar for instance, does not mean exactly the 
same thing to all consumers under all circum- 
stances. While the amount of wealth which 
an individual possesses has something to do in 
changing this measuring stick, still by far the 
most important force in the consumer's price is 
his demand. The price which the consumer is 
willing to pay for a goods which can satiate his 
wants is, therefore, in the main a fair measure 



DEMAND, VALUE, PRICE 37 

of his wants and demand for the goods and of 
the value he assigns to it. 

Market Value and Price. — The price which 
the consumer is willing to pay is, however, one 
thing ; that which the producer is willing to 
accept for his goods may be another thing. As 
we shall see under the section dealinsf with the 
marketing of goods, these two prices sooner or 
later come to a point of equilibrium, and the 
resultant of this equilibrium is the market price. 
The producer of cotton, the farmer, is willing to 
part with his crop at ten cents a pound. The 
consumer of this cotton, the manufacturer, is 
willing to pay nine cents. If the consumer and 
the producer are willing to compromise with 
each other on equal terms, there will be a market 
price of nine and one half cents ; nine and one 
half cents on one side of the scale and nine and 
one half cents on the other side will come to an 
equilibrium. Price, which is but a concrete 
measure of value, is, therefore, the key to all 
the many and wonderful economic forces at 
work in the consumer ; it can unlock all of his 
situations. It is likewise the key to all the 
forces, whether great or small, which are at work 
in the producer. 

Elasticity of Demand and Market Price. — The 
wants, and consequently the demand, for a 
goods are constantly changing. The living 



38 PRINCIPLES OF WEALTH AND WELFARE 

wants, as well as those for development and 
governmental protection, are ever changing, 
not only in their form but also in their degree. 
The desires of the consumer are elastic to a 
greater or less extent, and his demand is corre- 
spondingly elastic. For some goods the demand 
of the consumer is more elastic, for others it is 
less elastic. The demand for a few articles, 
the almost absolutely necessary ones, is in the 
main constant or inelastic. The want for salt 
in our foods is practically absolute ; it is in 
reality a want that can be satiated by no other 
commodity. The demand for such a food is, 
therefore, inelastic, and the market price of this 
goods will have slight effect upon the demand 
for it. Salt has been selling on the market for 
one cent per pound. Practically the same 
amount will, however, be consumed, if it should 
rise in price to one and one fourth cents per 
pound. The want for bread is universal and more 
or less constant. The demand for bread, either 
wheat, corn, or rye, is, therefore, inelastic, but 
for bread made of one of these cereals, — wheat, 
for instance, — it is comparatively elastic. If the 
price of wheat goes up as compared with that 
of corn, less wheat bread will be consumed 
and more corn bread will be demanded, and 
vice versa. The want for tea or coffee, while 
not universal, is nevertheless very prevalent. 



DEMAND, VALUE, PRICE 39 

The demand for either of these articles is, how- 
ever, very elastic. As these two articles supply- 
almost the same want and to almost an equal 
degree of satisfaction, the change from the use 
of one to that of the other is easy. 

These two illustrations of wants which are 
more or less elastic in their satiation are by no 
means exceptional. The consumer has, in fact, 
a great and varied field from which to select 
the goods that he will use in the satiation of 
his wants ; his demands are in actual fact largely 
elastic. He is no more a slave to the producer 
of goods than the producer of these goods is to 
the consumer of them. 

General Law of Demand and Market Price. — The 
consumer's demand varies more or less with the 
market price of the goods which he desires. If 
the market price is high, he in the main de- 
mands less of these goods, and the fact that he 
demands a smaller amount tends to bring their 
price down. If, on the other hand, the market 
price of certain goods is low, the consumer in 
the main demands more of these goods, and this 
increase in his demand tends to increase their 
price. We may, therefore, say that demand 
varies as the wants vary. If the wants become 
greater, the demand becomes greater. We may 
also say that demand varies at the same time as 
the price of goods, but not directly with the 



40 PRINCIPLES OF WEALTH AND WELFARE 

price. This is the general law or tendency of 
demand: (i) It varies directly with the wants^ 
and (2) inversely with the price. This general 
law does not, of course, apply to all cases and 
under all circumstances. We state it as being 
only a general tendency. For the very rich this 
law does not apply, at least fully. The man 
possessed of great wealth, as a rule, consumes 
whatever his wants call for, irrespective of 
whether the price is higher or lower, is in- 
creasing or decreasing. Likewise the demand 
of the very poor is in the main inelastic. They 
never consume more than is absolutely neces- 
sary, though the price of certain goods should 
become lower. 

The Principle of the Satiation of Wants ; Demand, 
Value, and Price. — We have now considered 
the consumption of wealth from the standpoint 
of human wants and their satiation, and also 
from the standpoint of the value which these 
wants create in certain material forms. The 
amount of wealth consumed, as well as the 
relations of the demand for a certain goods to 
the price of this goods, we have also treated. It 
is now necessary for us to examine the mental 
principles underlying all of the many aspects of 
the consumption of wealth. We have said that 
the reason for consumption is a want and the 
desire to satiate it by means of a certain form 



DEMAND, VALUE, PRICE 41 

and a certain amount of wealth. We have seen 
that the wants of the community as a whole are 
exceedingly varied in kind and degree of inten- 
sity, and this is also the true characteristic of the 
wants of individuals. The community and the 
individual alike have at one time wants of 
certain forms and degrees ; at other times their 
wants are of very different forms and degrees. 
Is there a principle of the satiation of wants 
by means of the use of wealth ? What is it ? 
Let us consider the degrees of intensity of a 
single want in a single individual, in order that 
we may discover the mental principle involved. 
The satiation of the wants for bread and meat, 
for instance, when analyzed, will reveal to us a 
principle which applies throughout the realm of 
human wants. 

Decrease in the Utility of and Demand for Succes- 
sive Units of Wealth illustrated in the Eating of 
Bread and Meat. — At the moment when the 
individual begins to satisfy his desire for bread, 
his want is then strongest, is at its maximum in- 
tensity. The more bread he eats at one time, the 
less and less strong are his want and demand for 
bread, until he finally comes to a point where his 
want for it is entirely satisfied and his present 
demand for it disappears. At this point he will 
pay no price for bread for his own immediate 
consumption. At the moment when he begins 



42 PRINCIPLES OF WEALTH AND WELFARE 

to eat, his want is greatest, and consequently 
the first mouthful of bread is the most useful to 
him. It gives him more pleasure than the second 
mouthful, the second more pleasure than the 
third mouthful, and likewise to the time when 
he will not eat another morsel. The first 
mouthful possesses for him the maximum of 
utility, while the last mouthful possesses the 
minimum of utility. To take another mouthful 
after he has fully satiated his want for bread 
will bring him something of discomfort. This 
last mouthful which he consumes — the last one 
to bring him pleasure — we may call the mar- 
ginal unit or mouthful. The utility of this 
last unit or mouthful is not only the turning 
point in his consumption of bread, but it is 
also the turning point in his present demand 
for bread and the price he will pay for it for 
present consumption. 

To be sure, our consumer will in a few hours 
need more bread ; that which he has eaten is 
soon consumed in the furnace of his muscular 
and mental activity. When, however, he again 
begins to eat, the same mental principle is at 
work as was in the first instance. We have said 
that, at the point of the complete satiation of his 
want for bread, he has no present demand for 
bread and will pay no price for bread to be con- 
sumed at this very moment. What of his de- 



DEMAND, VALUE, PRICE 43 

mand at this moment for meat ? When he has 
fully satiated his want for bread, has he also 
satiated his desire for meat ? No. He has con- 
sumed no meat, and it may be that this want, 
which is really a new want, an entirely different 
want from that for bread, is just at this very point 
maximum in its intensity. And its satiation is 
according to the same mental principle as that 
which we have just outlined. The utility of the 
last or marginal mouthful of meat, just as of 
bread, is the one which determines the con- 
sumer's present demand for meat, and also the 
price which the consumer will pay for meat 
to be consumed at the point of his complete 
satiation. 

Decrease in the Utility of and Demand for Succes- 
sive Units of Wealth Universal. — This principle 
of the decrease in the utility of successive units 
of goods consumed is universal. It is true of 
the satiation of all kinds of wants which the 
individual has, irrespective of their form or 
intensity. It is true of his developmental and 
protective wants, as well as his wants for food, 
clothing, and shelter. This same principle 
applies to the satiation of the wants of the 
community, though in the case of the larger 
economic body the decrease in the utility or 
value of the successive units of goods is by no 
means so rapid as in the instances of our 



44 PRINCIPLES OF WEALTH AND WELFARE 

illustrations. In fact, in the two cases which 
we have just analyzed, we have to an extent 
assumed that bread and meat are very perish- 
able articles of consumption, and that in con- 
sequence the demand for them is immediate, 
at the very time of their consumption. Most 
certainly this assumption is not in actual 
economic life entirely correct, but the cor- 
rectness or incorrectness of the assumption 
has little to do with the mental principle 
which we have described. 

This principle, moreover, applies, to a con- 
siderable extent, to the want for money which 
represents the most permanent forms of wealth. 
To the normal individual, who for a time has 
no money, the want for money is maximum. 
As he obtains more and more of it, unit by unit, 
or dollar by dollar, his desire for it becomes 
less intense, until finally his want for it is largely 
if not entirely satisfied. In this case the de- 
crease in the utility of successive units is very 
slow, much slower than in the illustrations con- 
sidered above. Money represents the more per- 
manent forms of wealth, in fact all forms of it, 
and can help the individual and society to 
satiate their wants of all imaginable shapes and 
degrees. For this reason the decrease in the 
value of its successive units is exceedingly slow. 
The slowness of the decrease does not, how- 



DEMAND, VALUE, PRICE 



45 



ever, set aside the principle of which we are 
speaking.^ 

How to distribute Wealth for Consumption: 
Equal Marginal Pleasure in satiating Every Want. 
- — The individual and society, whether they will 
it or not, are controlled by this great and univer- 
sal principle in all their consumption of wealth. 
There is, as we have said, more or less of 
pleasure in all consumption, unless it be in the 
wasteful and in- 
jurious uses of 
wealth ; the sa- 
tiation of normal 



^ Let us illustrate 
the decrease in the 
utility of and demand 
for successive units of 
goods by the following 
diagrams : — 

Figure (i) repre- 
sents a great and 
rapid decrease, while 
figure (2) represents 
only a slight decrease. 
The line ab repre- 
sents the utility of 
and demand for the 
first unit of goods, 
a^b^ the second unit, 
ay^b^^ the third unit, 
^iii^iii the fourth unit, 
. . . ay^^ the seventh 
unit. 



2 
a' 



3 
all 



4 5 
a"' ajy 

(0 



6 
av 



7 
avi 



ilV 



vVI 



t 


2 


3 


4 5 


6 


7 


a 


a' 


a." 


a!" a'v 


av 


ay! 








(2) 









46 PRINCIPLES OF WEALTH AND WELFARE 



wants of any character always brings pleas- 
ure to man. The amount of pleasure de- 
pends upon the strength of the want which 
the individual has, and this is, as we have 
seen, the resultant of many forces — of nature, 
society, and inheritance. The problems of con- 
sumption are, therefore, to find out the exact 
amount of wealth which will bring maximum 
pleasure, not only in the satiation of one par- 
ticular want, but also maximum pleasure in the 
satiation of all wants. If the individual in con- 
suming his wealth should spend for food, cloth- 
ing, and housing, and all his developmental 
and protective wants, the exact quantity of 
wealth which will cause his marginal pleasure 
in each of these wants to be the same, 
then he has solved a great and most difficult 
problem ; then he has brought to himself 
and the community in which he lives and acts 
the maximum of welfare which may come 
from the consumption of wealth. 

Consumption of Wealth 
and its Production; their 
Relations/ — We have 
said that there should 
be no consumption of 

^ Let us illustrate the relations 
of the consumption and produc- 
tion of wealth by the accompanying 
diagram. 




DEMAND, VALUE, PRICE 47 

wealth unless it be for the sake of the normal 
pleasure and welfare of the individual and 
society, for health and efficiency. There 
should likewise be no consumption of wealth 
apart from the view-point of its production. 
While the want for material goods comes first, 
the supply of these goods is just as vitally 
important as the want for them. In the main, 
therefore, no man should consume more than 
he produces, though unfortunately for himself 
and especially for society many men do. De- 
mand for goods and the supply of them more 
or less balance each other. We have con- 
sumer's demand, value, and price for every 
conceivable article produced, and the price 
which the consumer is willing to pay for a 
goods is the mighty motive force of its pro- 
duction. The producer is always willing 
to meet the demand of the consumer, in 
order to get from him the price which he is 
willing to pay. Consumption, the satiation of 
the many and varied human wants, in its very 
nature and purpose, assumes production, and 
likewise the production of wealth is essen- 
tially for the sake of its consumption. The 
forces, forms, and principles of consumption 
are, as we have seen, the results of nature and 
of society — the products of natural and social 
forces working upon the individual's physical 



48 PRINCIPLES OF WEALTH AND WELFARE 

and mental elements. So also are the forces, 
forms, and principles of the production of 
wealth. These are in part the results of the 
demand of the consumer, while in other parts 
they are the products of nature and of society. 

Production a Part of Consumption, and Consump- 
tion a Part of Production. — Not only is pro- 
duction a necessary result of consumption, 
but production is also in itself essentially a 
process of consumption. Every producer is 
always a consumer of finished products and, 
therefore, has his wants for these products. And 
as a producer he has wants for raw material, for 
labor, for land, for capital, and for business 
management, in all of their various forms. As 
a consumer, he consumes the higher forms of 
wealth in order that he may live and become 
more efficient, and as a producer he consumes 
the lower forms of wealth in order to create the 
forms of finished goods, which he as a con- 
sumer and the other consumers are ever demand- 
ing. Let us illustrate this point. The consumer 
calls upon the merchant for a yard of cotton 
goods. The merchant, in order to supply the 
demand of the consumer, must make use of the 
cotton manufacturer, the transportation agent, 
and the cotton farmer. The merchant in pro- 
ducing the cotton fabric — in placing it at 
the door of the consumer — consumes, in a 



DEMAND, VALUE, PRICE 49 

sense, the products of the manufacturer, trans- 
portation agent, and farmer. Production is, 
therefore, in large part a process of consumption, 
and consumption a part of the process of pro- 
duction. In the actual business world these 
two sets of forces are always working together, 
connected and interconnected, but for the sake 
of clearness of thought, and especially for clear- 
ness of statement, we shall now consider them 
under two separate heads. Later, under the 
section devoted to market price, we shall con- 
sider them together. 

QUESTIONS 

(i) What do you mean by demand? 

(2) What is value? How are value and price related? 

(3) Does the demand for beef vary with the price of 
beef? 

(4) How much wealth will a man yearly consume in the 
shape of salt, beef, flour, houses, fuel, clothing, travel, 
or education? 

(5) If you have wants and demands for a certain goods, 
will this goods be supphed to you? 

(6) If your wants and demands are supplied, is your 
welfare increased? 



SECTION II 

THE PRODUCTION OF WEALTH — WELFARE 

A. INTRODUCTION 

CHAPTER I 

PRODUCTION : ITS NATURE AND AGENTS 

General Nature of Production ; Nature and Man 
work Together. — We have already seen that 
the process of producing forms of wealth or 
utilities follows their consumption, and also 
that in many respects production is a part of 
the process of consumption and that consump- 
tion is a part of the process of production. 
We have also seen that the forces of the con- 
sumer create the demand for utilities, and to a 
large extent the utilities themselves, while the 
aim of the producer is to create the supply of 
these utilities, to create something which has the 
power of satiating the wants of the consumer. 
As nature and society are largely responsible 
for these wants in the individual, so nature 
and society are in large part the producers 
of the utilities which can satiate these wants. 

Nature is a mighty element in the production 
of all the conceivable forms of wealth, but man 

51 



52 PRINCIPLES OF WEALTH AND WELFARE 

must perform a certain part in the process of 
producing wealth in any form. If nature of 
her own forces suppUed all the goods needed 
by man as a consumer, if it were not necessary 
for man as a consumer to put forth some activ- 
ity and effort to satiate his wants, there would 
be absolutely no wealth as we understand it. 
A material thing must possess value before it 
becomes wealth ; and this value is in large part 
created by man, by his wants for the thing and 
by his efforts put forth in order to obtain 
possession of it. The production of wealth or 
articles of value is, therefore, a more or less 
complicated process, and the complexity of 
production depends largely upon the form and 
intensity of the wants on the part of the con- 
sumer. It also to a great extent depends upon 
the supply of the agents and instruments of 
production which nature and society bring to 
the individual as a producer. 

Various Demands and Various Products. — As 
we have seen, the wants of the consumer cover 
a wide, even a vast, range. In order to satiate 
these wants, the producer must in consequence 
create an enormous variety of products or utili- 
ties. We have the consumer on the coast of 
the Carolinas, for instance, whose wants for food 
do not extend beyond those of wild fruits, a 
few cereals and vegetables, fish and game. The 



PRODUCTION: ITS NATURE AND AGENTS 53 

producer in this stage of wants must needs 
make but very few and simple products. We 
have the consumer whose wants for food de- 
mand a few cereals, vegetables, fruits, and meats 
of hog, cow, or sheep, and to produce for him 
is as a rule a simple process. We also have 
the consumer whose wants for living, develop- 
ment, and protection demand articles in the 
production of which all the myriad forces of 
nature and all the ingenuity of man as a pro- 
ducer are combined. 

Producer and Consumer the Servants and Masters 
of Nature and her Forces. — In order to supply 
the demands of the consumer, man, as a pro- 
ducer, must work upon the great forces of 
nature by means of his own simple muscular 
and nervous energy, and by means of a certain 
amount of the forces of nature used as a motive 
power. In the earlier stages of economic life 
the producer has not learned to use the forces 
of nature as motive power, at least to any ex- 
tent, and he is consequently largely dependent 
upon his own energy. But the individual's 
muscular energy unaided by other forces is 
insignificant in the face of the great natural 
forces. The producer, who is thus dependent 
upon his own energy alone, is largely the slave 
of nature ; and at times she willingly offers to 
man her bounties in great quantities ; at other 



54 PRINCIPLES OF WEALTH AND WELFARE 



times she holds fast to her own. In such a 
stage of economic life the consumer, as well as 
the producer, is almost entirely dependent upon 
nature. At times his simple wants are satisfied 
to the utmost, while at other moments he must 
needs go hungry and ill clad. 

When, however, the producer begins to lay 
hold of the mighty forces of nature and to use 
them, as well as his own muscular and nervous 
energy, he is no longer a slave. When the 
consumer does not use all of his wealth for 
present satiation, when he reserves some of it 
for a future use, either for the satiation of his 
future wants or for making instruments for the 
production of more wealth, when the consumer 
has begun to do this he is no longer the slave 
of nature. Man as both a producer and a con- 
sumer is now liberating himself and is even 
becoming the master over great nature and her 
marvelous forces. 
Agents of Production in General : Labor, Land, 

Capital, Business Manage- 
ment.i — The agents of 
production are, therefore, 

^The relations of these four 
agents may be easily understood 
by examining the accompanying 
diagram. 

The square represents the 
realm of the production of wealth. 




PRODUCTION: ITS NATURE AND AGENTS 55 

man and nature. Nature acts upon man, and 
he becomes a consumer. Man acts upon nature, 
and we have the process of production. Let us, 
for the sake of clearness of thought and exposi- 
tion, subdivide these two agents. In our discus- 
sions we shall consider four agents, more or less 
distinct from each other, — labor, land, capital, 
and business management. In actual business 
life labor and business management are more 
or less intimately connected ; they are aspects 
of one great force — man. Land and capital 
are also very closely allied, though by the 
masses of people they are thought of as being 
two separate forces. In all the aspects of the 
production of wealth there is a certain amount, 
more or less, of each of these agents. In every 
article produced, to satiate man's wants, there 
is a part of it which each of these agents has 
created. The man who tills the soil, and by the 
aid of nature makes certain simple products, 
uses to some extent labor and business man- 
agement, as well as land and capital. In the 
transportation service, which carries a man from 
New York to Chicago in eighteen hours, all 
these agents are at work. In fact, the farmer, 
the miner, the manufacturer, the transportation 
agent, and the merchant, of whatsoever line, 
and to whatsoever degree, all must make use 
of these four agents. 



56 PRINCIPLES OF WEALTH AND WELFARE 

And we shall treat these agents as being 
really commodities, which are produced and 
consumed, bought and sold. They are gov- 
erned in their quantity, quality, and price by 
the same general forces and in the same gen- 
eral way as are all other commodities. 



B. AGENTS OF PRODUCTION 
CHAPTER II 

LABOR A PRODUCING AGENT 

Labor a Producing Agent. — Though great na- 
ture and her forces come first in point of time, 
it is the marvelous being, man, who stands first 
in point of importance. Man and the satiation 
of his wants are the most vital forces in all 
aspects of wealth consumption. They are also 
the most vital forces in wealth production. 
Man, his welfare, and activity, these are the 
sources from which springs all economic life. 
That labor, and by this term we mean labor of 
the ordinary type, should have the first place 
in our consideration of the agents of produc- 
tion is, therefore, most natural and rational. 

Labor, How Productive : (a) Individual Ca- 
pacity. — We have seen that the individual as a 
consumer of wealth is surrounded by the forces 
of natural and social environment and heredity. 
So likewise is the individual as a producer of 
wealth. Not only is he surrounded throughout 
his life by these forces, but he is also influenced 
profoundly by them. His capacity for economic 

57 



58 PRINCIPLES OF WEALTH AND WELFARE 

activity and effort, as well as his capacity for eco- 
nomic enjoyment and welfare, are, therefore, only 
in part of his own making. There is, however, 
a part of his capacity which is his own, irrespec- 
tive of his surroundings. But what is this part 
which is his own ? Let us answer this question 
in the following paragraphs. 

The IndividuaPs Strength, Energy, and Endur- 
ance. — We well know that the laborer's efficiency 
as a producing agent depends in large measure 
upon the strength, energy, and endurance of his 
physical parts — his body. But these qualities 
in turn depend, to a great extent, (i) upon his 
inheritance, the muscular and nervous powers and 
tendencies which have been transmitted to him 
from his ancestors. They also depend (2) upon 
the nourishment which they have received before 
the time when the laborer becomes sufficiently 
strong to produce utihties for his own consump- 
tion. These qualities likewise depend for their 
efficiency (3) upon the care which the laborer 
himself bestows upon them ; they depend upon 
the extent to which he properly feeds, clothes, and 
shelters them, or upon the quantity and quality 
of the goods he himself consumes. The treat- 
ment which the laborer gives to himself is, how- 
ever, largely influenced by (4) the real wages 
which he secures as a result of his work. His 
wages depend, as we shall see under the head 



LABOR A PRODUCING AGENT 59 

of the distribution of wealth, upon his own 
efficiency, upon the total supply of labor as 
compared with the demand for it, and upon the 
honesty of the employer of his services. 

The laborer is influenced not only by the 
external forces of inheritance and of economic 
and social environment, but also by the 
(5) climate and conditions of health in which he 
lives and works. Climate gives him more vigor 
and energy, or it makes him lazy. It likewise 
causes him to supply his body with better food, 
clothing, and shelter, or permits him to eat less, 
wear little clothing, and live in a simple hut. The 
climate of Massachusetts unquestionably makes 
a laborer more energetic, while that of Louisiana 
makes him less active. (6) Life in a crowded 
city, certainly in its most densely populated and 
squalid portions, has great and profound influ- 
ence upon the efficiency of the laborer as a 
producer of wealth. Here vitiated air and lack 
of sunlight, to say nothing of direst poverty 
and extreme dissipation which at times prevail 
in such locations, — these sap his vitality, and 
undermine his energy and endurance. 

The Individual's Intelligence, Judgment, and 
Ambition. — These physical qualities, while fun- 
damentally necessary for efficiency, have need of 
a guiding force. Pure muscular strength and 
energy without such a guide can produce but 



6o PRINCIPLES OF WEALTH AND WELFARE 

little. The laborer must also have a brain, as 
well as a body, before he can become an efficient 
producing agent ; he must have keen intelligence 
and sound judgment, as well as physical strength 
and energy. There is, moreover, another mental 
quality which adds greatly to the efficiency of 
the laborer — ambition. This is not a regula- 
tive force, but a stimulative one ; it is one that 
drives on to further and greater effort. All 
these mental faculties in the laborer, while they 
greatly influence the physical ones, are in turn 
profoundly influenced by them; the health, 
strength, and energy of the individual have 
much to do with his intelligence, judgment, 
and ambition. The mental qualities of the 
laborer are, therefore, in large part the product 
of his physical faculties. They are also in large 
part the resultant of an educational process. 

Our public educational systems have been one 
of our greatest economic forces. They have 
profoundly impressed and shaped the efficiency 
of the laborer, have added to his intelligence 
and judgment, have given him the ability to 
look far and wide into the present and future, 
and have created within him both ambition and 
imagination. 

The Individuars Imagination. — So long has 
it been our habit to confuse imagination, a truly 
great and creative force, with wild and un- 



LABOR A PRODUCING AGENT 6l 

controlled mental traits, that we condemn the 
laborer who possesses it. Such condemnation 
is, however, incorrect and unsound. It dis- 
courages the culture of one of the greatest of 
all the mental forces which are at work in the 
whole economic realm. Imagination in the 
business world is fundamentally necessary. 
All forms and qualities of goods are produced 
according to some pattern, and this model is the 
result of the imaginative force. All kinds of 
organization in business activities are likewise 
constructed first in the mind of man. Muscular 
energy is necessary in all aspects of production \ 
it is in itself a productive force. But when 
directed and stimulated by a brain full of 
intelligence, judgment, and imagination, it is a 
thousand times, yes, a million times, more pro- 
ductive. It is the possession of such a brain as 
this that causes one laborer to rise in efficiency 
far above another, though both may be of the 
same physical energy, that causes a great cap- 
tain of industry, a great manager of all the 
agents and forces of production, to come up from 
the lowest ranks of common labor. It is such 
a brain as this that causes a Carnegie or a 
Rockefeller to rise from the rank and file of the 
laborers. 

Labor, How Productive : (b) Method of using 
Individual Capacity. — We have said that labor 



62 PRINCIPLES OF WEALTH AND WELFARE 

as a producing agent is a commodity, and that it 
is bought and sold in the main according to the 
same principles as are ordinary goods. Being 
a commodity, labor is under competition, more 
or less depending upon the grade of efficiency 
and the special line of work. As a rule one 
laborer competes with another laborer^ and this 
condition is largely the true one in all groups 
and subgroups of work and in all grades of 
efficiency of service. This does not mean that 
a laborer who is skilled in a particular field of 
work competes with those who have no skill in 
this field. It does mean, however, that all the 
laborers who are skilled in the same field and 
are working in that field are competing with 
each other. Not only does labor compete with 
labor, but labor is also competing with the great 
forces of nature and with capital as producing 
agents. Capital, in the shape of machinery, has 
been the greatest competitor which the laborer 
has perhaps ever had. The employer of the 
agents of production, usually called the business 
manager, is ever applying the principle of sub- 
stitution, with the view of producing his goods 
at a cheaper cost and thereby making greater 
profits. He substitutes labor for capital and 
capital for labor. He at one time uses more 
labor and less machinery ; at another time less 
labor and more machinery. 



LABOR A PRODUCING AGENT 63 

This competition of labor with labor and of 
labor with capital, while in some respects it tends 
to stimulate the laborer to greater effort and 
efificiency as a producer, in many cases brings 
hardship to him. In this competition, which at 
times assumes bitter and hostile aspects, the 
strongest in the main survives ; and we mean 
by the strongest not necessarily the best man in 
himself, but the one who can use his powers and 
his environment to the best advantage to him- 
self and perhaps to society. The method of 
using his labor, especially in selling it to the 
employer of it, is, therefore, of great and vital 
importance to the laborer. The method, which 
has so far been of most advantage to the laborer 
in his attempts to stand up under the forces of 
competition and to sell his services at a higher 
price, is combination. This method gives the 
laborer not only a great advantage in selling his 
services to the employer, but also a distinct 
advantage in stimulating him to develop his 
own capacity. By means of this method the 
laborer's services are managed on the labor 
market by the maximum of skill. By means of 
the trades unions, or some other organization of 
labor, the laborer can also make himself a more 
efHcient producer. Combination is the method 
which brings strength and efificiency to all the 
agents of production, to the employer or business 



64 PRINCIPLES OF WEALTH AND WELFARE 

manager, as well as to the common worker, 
though such a method may at times bring serious 
disturbances into the business world. 

Labor, How Productive : (c) Amount of Labor. 
— The total productiveness of labor depends 
not only upon the individual's capacity and 
the method he uses in employing his produc- 
tive powers, but also upon the total amount of 
labor in existence. The size of the labor mar- 
ket in any locality largely determines the ability 
of that locality to produce wealth, and likewise 
its ability to consume it. The efficiency and 
quantity of labor are unquestionably great and 
fundamental elements in a nation's prosper- 
ity and progress. We have already spoken of 
the sources of efficiency. Let us now consider 
the sources of the quantity of labor. The 
quantity of labor for any locality depends upon 
the natural growth of population, the excess of 
births over deaths, and also upon the migration 
of population. To the United States, for in- 
stance, more than twenty-two million souls have 
come from other countries since 182 1. This 
increase by migration has been enormously 
large, to say nothing of the great excess of 
births over deaths. For those countries which 
are wholly unaffected by the forces of migra- 
tion, there is, of course, but one source of the 
quantity of labor — more births than deaths. 



LABOR A PRODUCING AGENT 65 

And this population by virtue of natural growth, 
in consequence of an excess of births over 
deaths, depends upon many forces. Among 
these forces climatic conditions are perhaps the 
most important. 

Climate and Population: in Warmer Climates 
Greater Growth; in Colder Climates Smaller 
Growth. — That the climate has something to 
do with the size of population, as well as its 
strength and efficiency, we have abundance of 
evidence. In the warmer climates, other condi- 
tions being anything like equal or similar, we 
find marriage at an earlier age, a higher marriage 
rate, and consequently a greater birth rate. 
We find, on the other hand, that the con- 
ditions of living and sanitation in the warmer 
climates are far less favorable to health than 
they are in colder ones, and these inferior 
health conditions tend to keep down the in- 
crease of population. In colder climates we 
have a much lower marriage rate, later mar- 
riage, and consequently a much smaller birth 
rate. In these locations, however, we generally 
find better sanitary conditions, and these condi- 
tions mean a smaller death rate. We, therefore, 
have a much more rapid growth of population 
in warmer climates than in colder ones, espe- 
cially so if the conditions of health are at all 
favorable. 



66 PRINCIPLES OF WEALTH AND WELFARE 

Physical Vigor and Population. — That the 
natural growth of population should in a large 
measure depend upon the physical health, 
strength, and vigor of the individual, follows 
from the very nature of the reproduction of the 
human species. Children are not born and 
cannot be born of invalid parents ; there can be 
no reproduction without physical vigor. The 
physical qualities necessary for reproduction are, 
however, largely influenced by the climatic and 
economic conditions in which the parents live, 
and these conditions, especially the economic 
ones, are in a large measure dependent upon the 
wages received. All other things being equal, 
higher wages mean a greater birth rate and a 
smaller death rate. Higher wages make pos- 
sible more physical vigor on the part of the 
parents and also better nourishment and sani- 
tary conditions for the child. 

Economic and Social Conditions and Ideals 
influence Population. — As we have already seen, 
economic man is not wholly, or even in large 
part, individualistic. He is surrounded from 
the moment of his birth to that of his death, by 
economic, social, and spiritual forces. He lives 
in a realm which, to a large degree, is created 
by nature's forces, by the larger body called 
society, and by the Great Being who controls 
and directs all forces and beings. Though he 



LABOR A PRODUCING AGENT (ij 

lives and moves in a world of which he is only 
in a slight part the maker, man throughout 
most of his life enjoys some individual freedom 
and bears some individual responsibility ; he 
has some choice in his own labors, thoughts, 
and feelings. His freedom is, however, always 
a relative, not an absolute quantity. The ex- 
ternal forces and influences which always sur- 
round him do not all the time make equally 
powerful impressions upon him. The individ- 
ual's desires and acts are, therefore, in part his 
own, and also in part the result of his peculiar 
economic, social, or religious surroundings. 
Man's environment, as well as his individual 
instincts and desires, has much influence upon 
the strength and the amount of population. 
Let us consider the influence which economic 
and social conditions and ideals have upon the 
growth of population in the following classes, 
(i) The Unskilled Class and Population; 
Greatest Growth, — It is among the lowest 
ranks of society that we have, as a rule, the 
greatest birth rate. The unskilled man, the 
laborer who has only muscular and nervous 
energy to use and sell, receives as large wages 
at twenty years of age as he does at forty. He 
does not earn his wages by skill, which it takes 
many years to acquire. If his wages are maxi- 
mum at twenty, the tendency is for him to 



68 PRINCIPLES OF WEALTH AND WELFARE 

marry at this age, if not at an earlier one. La- 
borers of this class, therefore, marry while they 
are young, and many children are born unto 
them, if their conditions of living are such as 
to cause them to be vigorous in their physical 
qualities. When surrounded by climatic, eco- 
nomic, and sanitary conditions, which bring 
health to themselves and their children, this 
class will double itself in thirty years and in- 
crease a million fold in six hundred years, if 
pestilence or war does not take them away. 

As yet, however, the world has never by any 
means witnessed such a marvelous increase in 
its laborers. We may with sufficient reason 
expect to see great improvement in the condi- 
tions of the health and strength of the masses, 
but whether the future shall behold such a great 
multiplication of the race as this, no thoughtful 
man will predict. Modern action and thought 
all look toward better and more efficient condi- 
tions of human life. The task of caring for the 
sick and the infirm, as well as that of eliminating 
the conditions which breed these, is more and 
more being overcome. It is not only necessary 
that the conditions of health be greatly improved, 
but it is also necessary that wealth be wonder- 
fully increased before we can have such a great 
growth of population. When population in- 
creases at a greater rate than does wealth, wages 



LABOR A PRODUCING AGENT 69 

decrease, and with a decrease in wages we 
always have a falHng off in the birth rate and 
oftentimes an increase in the death rate. 

(2) The Rich and Population; Smallest 
Growth, — While among the unskilled workers 
we may with good reason expect a very consider- 
able, if not a very large increase, among the high- 
est classes of our economic society we shall 
probably have but a very slight growth. This 
small increase among the rich, among the indus- 
trial managers and captains, is most certainly not 
because of economic conditions. It is because 
of economic, and especially social, ideals. The 
parents of this class can surround their children 
with the best possible conditions of health, but 
still the excess of births over deaths is very 
slight. These parents, for some reason or other, 
do not desire to have many children, at least 
to care for many children. The cause, while 
somewhat due to economic ideals, is very largely 
social. The social ideal among a great number 
of this class is at present most strongly set 
against large families. A large family inter- 
feres with the social pleasures and dissipations, 
and for this reason largely we find but few chil- 
dren in the homes of the very rich. 

(3) The Skilled Class and Population; Mod- 
erate Growth. — Between these two great ex- 
tremes, between the unskilled laborer with his 



70 PRINCIPLES OF WEALTH AND WELFARE 

numerous children and the highly skilled and 
great producer with his very small family, stands 
a middle class. Upon this class the social ideals in 
reference to children have very much less influ- 
ence than is the case with the highest class. With 
the parents of this class, however, economic con- 
ditions and ideals, especially the economic future 
of both parent and child, have great and weighty 
considerations. Among these workers the aver- 
age age of marriage is high, and consequently 
the birth rate is lower. They do not receive 
their maximum wages until, perhaps, at the age 
of thirty-five ; they must acquire their skill, as 
well as their physical maturity, before they can 
become the most efficient producers. These 
economic conditions tend to postpone marriage 
for this class of laborers, and with marriage later 
in life fewer children are born unto them. But, 
as we have said, social ideals have compara- 
tively slight influence upon their thought and 
action — to them a baby is not a great social 
hindrance, and, though they marry later in life 
than do the highest social classes, more children 
are born unto them. 

Great Growth of Population in the United States. 
— For all of these classes modern science, medi- 
cine, philanthropy, and governmental regulation 
have produced marvelous results. The death 
rate of each class has in many places been greatly 



LABOR A PRODUCING AGENT *j\ 

diminished. Population consequently tends to 
increase more rapidly, notwithstanding the fact 
that there is, because of certain social and eco- 
nomic ideals, a counter-tendency working to di- 
minish it. This counter-tendency has, however, 
not been very strong, especially in our own 
country. Throughout our life as a nation, we 
have grown rapidly of ourselves : by our excess 
of births over deaths. Our blood has been 
strong, vigorous, and highly reproductive. We 
have likewise borrowed, so to speak, sons and 
daughters from the four quarters of the globe ; 
from 182 1 to i^oj more than twenty-oite million 
foreigners came to otir shores. 

In 1790, when we began our national exist- 
ence, we had less than four million people. By 
1900 we had increased to the enormous figure 
of seventy-five millions. From 1790 to i860 
we doubled in population three times ; we in- 
creased from 3,929,214 to 31,443,321. The 
world has, perhaps, no parallel to this increase 
of population, at least upon an equal scale. And 
the vast crowds of foreigners who have come to 
us have almost exclusively settled in the sec- 
tions of the North and West. For the states of 
these sections the immigrants, of almost the 
lowest of the economic and social ranks and of 
almost all the nationalities and religious sects, 
constitute not only one of the greatest of all 



72 PRINCIPLES OF WEALTH AND WELFARE 

economic problems, but also one of the most 
perplexing of all social and political problems. 
On the other hand, to the states at the South, 
where there are at present about eight million 
negroes, the negro is beyond a doubt a most 
serious industrial, political, and social problem. 

Our gigantic growth in population, along 
with the great and extensive westward movement 
which has accompanied it, has perhaps been 
the greatest factor in our rapid and wonderful 
economic life and development. Along with 
this increase of labor, along with this movement 
westward to fields new and marvelously en- 
dowed by nature, has been another fundamen- 
tally important movement — the growth of Amer- 
ican cities. In 1800 only four per cent of our 
population dwelt in towns of eight thousand 
or more. By 1900 thirty-three per cent of 
our people lived in cities, — an extraordinary 
increase within a century. Many of the foreign- 
ers who have come to us have settled within 
our cities and have greatly swelled their popu- 
lation. So quickly have our cities grown, so 
great have been their economic problems, as 
well as those of their government, that we have 
not by any means mastered them. 

This marvelous increase in American labor 
has not, however, been in excess of the growth 
in American wealth. While our population 



LABOR A PRODUCING AGENT 73 

grew from thirty-one million in i860 to seventy- 
five million in 1900, our wealth grew during 
these years at a still greater ratio. When the 
civil war began, the American people possessed 
wealth valued at about $ 1 6,000,000,000. When 
the nineteenth century came to a close, this 
wealth had grown to the enormous figure of 
about ^94,000,000,000. 

Labor, How Productive: (d) Araount of the 
Other Agents ; the Demand for Labor. — In all of 
the aspects of the productiveness of labor, which 
we have just considered, we have assumed that 
labor is at work with the other agents of pro- 
duction — land, capital, and business manage- 
ment — in some proportion or other. Labor 
in connection with the other agents produces 
wealth, and the part that it produces in each 
article, which they together create, depends upon 
the efficiency and quantity of these agents, as 
well as upon the efficiency and quantity of 
labor. We have under this assumption dis- 
cussed the productive powers of labor from the 
point of view of the individual's capacity and 
the method of using it, and also from the point 
of view of the quantity of labor. 

It is now necessary to explain our assump- 
tion and to speak more fully of the relation of 
the productiveness of labor to the quantity and 
quality of the other agents with which it works. 



74 PRINCIPLES OF WEALTH AND WELFARE 

If the amount of labor is small as compared 
with the demand for it, that is if the quantity 
of labor is small as compared with that of capi- 
tal and the other agents, the individual laborer 
produces more wealth ; he works with more 
efficient instruments and employs his energy to 
greater advantage. On the other hand, in- 
crease the quantity of labor, its quality remaining 
the same and the demand for it remaining the 
same, and the individual laborer produces less 
wealth ; he employs his energy to less advan- 
tage. In the United States, labor, while it has 
within the last century increased with wonder- 
ful rapidity, has not yet increased as rapidly as 
has wealth. Its supply is not great as compared 
with the demand for it, and consequently the 
individual laborer produces much wealth and 
receives much wealth in wages. In China, on 
the other hand, the supply of labor is enormous 
as compared with the demand for it. There the 
individual laborer produces little and conse- 
quently receives little in wages. 

QUESTIONS 

(i) Upon what does the productive power of the laborer 
depend? 

(2) What does a great population have to do with the 
production of wealth? 

(3) Does an increase in the wealth of a community 
cause its native population to increase? 



LABOR A PRODUCING AGENT 75 

(4) Does a warm climate make it possible to produce 
great wealth? 

(5) How may North CaroHna and Nebraska increase 
the quantity and efficiency of their labor ? 

(6) Does a large number of efficient laborers increase the 
welfare of a community? 



CHAPTER III 

LAND A PRODUCING AGENT 

Nature in Production; Land and the Forces of 
Nature. — We have already said that, in the pro- 
duction of utilities which can satiate or help to 
satiate human wants, man and nature work 
together. Man alone cannot produce such 
utilities ; neither can nature alone. When 
these two forces, or sets of forces as they really 
are, work in connection with each other, wealth 
in many forms and in great quantities may be 
produced. The productiveness of a part of the 
first set of these forces — the productiveness of 
ordinary labor — has already been considered. 
Later we shall treat of the other part of the 
first set of forces — business management. Let 
us now take into our consideration the set of 
forces called nature. 

The first and most important element of 
these forces of nature has always been thought 
to be land and its accompaniments — water, air, 
light, and heaf. When the men of ancient or 
mediaeval times spoke of nature as a producing 
agent, they had in their mind the vision of soil 
and of the agricultural products which man 
working with it might create. When to-day we 

76 



LAND A PRODUCING AGENT 77 

speak of nature as a producing agent, we think 
of something more than soil and its allied 
forces. We have the vision of extended space 
upon which to build our houses, factories, and 
railways ; we have the vision of soil yielding 
forth, under the pressure of man, manifold 
kinds of vegetable products ; we have the vision 
of water, steam, and electricity, being made the 
playthings, so to speak, as well as the mighty 
motive forces of man ; we have also the vision 
of great stores of minerals which nature through- 
out her long existence has gradually accumu- 
lated. In our present discussion, we shall, 
however, treat exclusively of land and its accom- 
panying forces — of land as a producing agent. 
The great motive powers and mineral resources, 
as we understand them as producing agents, 
more truly belong to capital than to land. The 
business man thinks of his water, steam, or 
electric plant, and his mines, as a part of his 
capital, rather than as a part of his land, though 
each plant makes use of a certain quantity of 
land. In fact, the distinction between land and 
certain forms of capital as producing agents is 
very slight. They could, therefore, be very 
properly treated the one under the head of the 
other. But in our treatment we shall, chiefly 
for the sake of clearness of thought, keep them 
separate and distinct. 



yS PRINCIPLES OF WEALTH AND WELFARE 

Land has always been thought by man to be 
a producing agent and consequently a part of 
his wealth, whether he owns it himself or in 
common with his fellow-men. He has used its 
smaller vegetable growth for the pasturage of 
his flocks and herds, and the larger growth for 
his own fuel. He has made use of its fertility 
for agricultural purposes, its space extension for 
buildings, and some of its minerals as instru- 
ments in his own hands for greater production ; 
and in all of these uses land has productive 
power. The productive power of this agent, 
as that of labor, depends upon its various prop- 
erties and the method of their use. 

Land, How Productive : (a) Fertility and Me- 
chanical Properties of Tillage. — Upon the whole, 
land is used more for agricultural purposes than 
for any other, and for such uses the most im- 
portant property is its fertility — the chemical 
compounds and agents which it possesses. But, 
in connection with its chemical properties, there 
must also be certain mechanical properties. It 
is not only necessary to have fertility, but it is 
also necessary to have a soil that can be tilled, 
a soil through which the roots of vegetation 
may enter and water permeate. Trees and 
vegetables do not grow and cannot be made 
to grow upon solid rock. On the other hand, 
land without fertility will not produce utilities, 



LAND A PRODUCING AGENT 79 

though it possesses all of the mechanical prop- 
erties needed for the roots of vegetation ; these 
roots must be fed by the soil, as well as sur- 
rounded by it. 

Land, with all of its wonderful chemical and 
mechanical properties, when left to itself, is 
really not a producer of wealth. It produces 
no material form which, unchanged by man, 
may be thought of as wealth in the sense in 
which we use the term. And its products, 
which may be transformed by man into utilities 
for the satiation of his wants, are created very 
slowly by nature alone. When, however, man, 
by means of his own strength alone, or by 
means of this strength, and also certain instru- 
ments of power which he and nature have 
produced, works with land and her forces, its 
useful products grow and multiply with won- 
derful rapidity. Man may merely till the soil 
by means of his plow and hoe, and thereby 
make its mechanical properties loose so that 
roots and rains may easily enter them. He 
may also, by adding reagents — fertilizers, ma- 
nures, and ashes — completely change the chemi- 
cal compounds. These chemical and mechanical 
properties of land, from which man may bring 
forth fruits, vegetables, and plants, are in part the 
gift of nature, and in part the result of man's 
labors and expenditures upon them. At times 



8o PRINCIPLES OF WEALTH AND WELFARE 

we find lands which nature has made not only 
fertile, but also loose and mellow. At other 
times the fertility and looseness of the soil 
are largely the result of the expenditures of 
wealth and labor on the part of man. 

Land, How Productive : (b) Light, Heat, and 
¥/ater. — Fertility and the mechanical prop- 
erties of soil, though fundamentally necessary 
for agricultural uses, are not the only elements 
of soil which possess productive power. There 
must also be sufficient light, heat, and water 
before vegetation can grow and bring forth its 
ripened fruits. Let us take into our considera- 
tion some illustrations. The farmer of northern 
Maine may possess the most fertile and easily 
tilled lands. If his summers are short, his 
summer sky largely overcast with clouds, and 
the temperature low, he produces but little, 
though his acres be many, soft, and rich, 
and though he till them with the maximum 
amount of skill and scientific knowledge. On 
the other hand, the fertile and mellow lands 
of the far South or of the West, which lie under 
clear and scorching suns, will yield but little un- 
less there is a large amount of rainfall or a great 
supply of water by means of irrigation canals. 

Land, How Productive : (c) Extension or Amount 
of. — Lands used for mining purposes, lands 
from which are extracted the minerals that 



LAND A PRODUCING AGENT 8 1 

nature through long periods has deposited in 
certain places, need not possess any of these 
properties which we have just considered. It 
makes little difference whether land for these 
uses be fertile or poor, loose or stiff, hot or 
cold, moist or dry. Likewise in land for build- 
ing or transportation purposes little use is 
made of these properties which are so funda- 
mentally and vitally necessary in agriculture. 
There is, however, one property which is abso- 
lutely necessary for all uses of land, and that is 
its space extension. This property is not only 
fundamentally necessary for all uses of land, but 
it is also fundamentally necessary for all as- 
pects of man's life, whether he works with 
land, capital, or the mighty motive powers of 
nature, and whether he creates the simplest 
or the greatest and highest forms of wealth. 
This property is necessary for him as a pro- 
ducer and as a consumer. Space extension or 
the amount of land, just as the amount of labor, 
has much to do with its total productiveness. 
The greater the quantity of land, other things 
being at all equal, the greater the productive 
power of a nation or of a community. 

That the quantity of land has been recog- 
nized by the American people as a great factor 
of production requires no detailed argument. 
The history of our wonderful economic life, as 



82 PRINCIPLES OF WEALTH AND WELFARE 

well as of our governmental conduct, is full of 
proof to this effect. We at first possessed only 
the narrow strip along the Atlantic seaboard. 
We later moved across the mountains into the 
fertile and extensive acres lying to the east of 
the Mississippi River. We then by leaps and 
bounds went to the Pacific Ocean — a territo- 
rial expansion the like of which the world had 
never before seen, at least within such a short 
space of time. 

Land, How Productive: (d) Situation. — The 
chemical and mechanical properties and the 
climatic surroundings, as well as the extent of 
land, are not its only elements of productive- 
ness. The location of land is also a great factor 
in its ability to produce wealth. The farmer 
and miner, the manufacturer and transportation 
agent, the merchant and the owner of houses 
for rent, — men in all aspects of the business 
realm recognize this element as an exceedingly 
important one. The distance of certain lands 
from large towns or cities, and from transporta- 
tion facilities by water or land, is a gigantic 
element in their productive power. 

The situation element of land, which has be- 
come of such great importance, is in part the 
result of nature, but in larger part the product of 
man. As individuals have more and more con- 
gregated upon certain favorable spots, as towns 



LAND A PRODUCING AGENT 83 

and cities have grown to enormous proportions, 
and as means of transportation between these 
cities have been perfected, a new and marvel- 
ously great element has been given to the land 
situated within or near these mighty centers of 
population. Select one acre of land in middle 
North Carolina, which possesses an average of 
fertility and properties of tillage, which has an 
abundance of light, heat, and moisture, and you 
can purchase it for $20. Select in certain por- 
tions of New York City one acre of land which 
is possessed of exactly the same properties, so 
far as nature can create these properties, and 
you will have to pay #1,000,000. Why the 
enormous difference in the price ? We believe 
that this vast difference in price is a fair rep- 
resentation of the difference in productive power. 
But what has created this great difference in 
productiveness ? Nature certainly has not to 
any very great degree. It is man. Economic 
society has established upon the land of New 
York City its great American center, in fact one 
of the greatest centers of the whole world. The 
productive power of land, not only in New York 
City but also for many miles outside of it, has 
been greatly increased by the very fact that New 
York has become such a great economic center. 
Land, How Productive: (e) Amount of the 
Other Agents of Production; the Demand for 



84 PRINCIPLES OF WEALTH AND WELFARE 

Land. — All of the properties of land, of which 
we have spoken, are more or less relative prop- 
erties. They depend for their productivity to 
a large extent upon the amount of labor, capital, 
and business management employed with them 
— that is upon their uses and the method of their 
uses. As we have already seen, their agricultural 
products depend largely upon the amount of 
fertilization and tillage. These products also 
depend to a great extent upon the kind of crops, 
as well as their rotation, which man attempts 
to plant upon the land. Many an acre of soil 
produces little because it is poor in its fertility 
and because its tillage is insufficient. Many an 
acre, though by nature supplied with many and 
rich properties, produces little because the method 
of cultivation is thoroughly unscientific and be- 
cause the same crop is year after year planted 
upon it. 

Agriculture has been profoundly changed, in 
fact revolutionized, within the last century. 
Some of these changes have come as a result 
of man's taking up new land, as a result of a 
vast and unparalleled territorial expansion. The 
American farmer has moved westward. As his 
old lands, from the point of view of tillage, have 
become less and less productive, he has cleared 
new fields, and has gone to other fields whose 
natural resources have not as yet been worked 



LAND A PRODUCING AGENT 85 

by man. Most of the recent agricultural 
changes have, however, come from other sources 
than that of territorial expansion. They have 
come as a resultant of new and scientific 
methods of tillage and fertilization. The farmer 
has now in many locations ceased to strive for 
extensive acres, for extensive farming. He now 
spends his labor, capital, and business manage- 
ment upon fewer acres ; he now farms more 
and more intensively. He changes the chemi- 
cal compounds of his soil to meet the needs of 
the crop he desires to plant, and he also plows 
his soil thoroughly and deep. He has learned 
the vitally important lesson that from one acre, 
from which he formerly received but four bushels 
of wheat, he can by means of a slight increase 
in the labor, capital, and business management 
expended upon it receive thirty or forty bushels. 
He is likewise beginning to learn a no less im- 
portant lesson: that planting his soil from year 
to year with the same seed soon exhausts the 
chemical properties which are needed for the 
nourishment of this seed. He is learning that 
no soil possesses one kind of properties in in- 
exhaustible quantities, and that all soils possess 
many different properties in smaller or greater 
quantities. Many farmers now realize, and very 
fortunate would it be if all of them could learn 
the lesson, that to grow cotton, for instance, for 



86 PRINCIPLES OF WEALTH AND WELFARE 

years upon the same soil is the most extrava- 
gant and wasteful consumption of its natural 
utilities. It is, therefore, manifest that the 
productiveness of land for agricultural uses is 
largely dependent upon the labor, capital, and 
business management applied to it. 

This is equally a characteristic of land used 
for mining, building, or transportation pur- 
poses. The richest vein of gold in the world 
will yield comparatively slight results unless 
there is employed upon its production, its ex- 
traction, a sufKicient quantity of capital and 
labor. Nature, as a rule, does not yield her 
products without being hard pressed by man. 
Her great and extensive treasures are hidden 
far beneath the surface, and man must put 
forth all of his effort and ingenuity before he can 
convert many of them into wealth, into utilities 
for the satiation of his own wants. 

Land, How Productive : ( f ) Increasing and De- 
creasing Returns. — Land as a producing agent, 
whether for agricultural, mining, or building 
purposes, produces wealth or utilities according 
to certain tendencies which we may call eco- 
nomic laws.^ We have already seen that the 

^ Economic laws are not so unchanging as are the laws of 
nature, as for instance those of chemistry, physics, or mathe- 
matics. Their data are always more or less changing ; they have 
a large human element in them. They are only statements of the 
tendencies of forces which are themselves to an extent changing. 



LAND A PRODUCING AGENT 8/ 

productiveness of land depends upon its natural 
properties, upon the uses which are made of 
them, and upon the quantity of labor, capital, 
and management employed in working these 
properties. We have also seen that soil in 
bearing from year to year the same kind of 
crop, wheat or cotton for instance, will bring 
forth less product as the years go by. As the 
properties which nourish these plants are grad- 
ually used up or consumed, the results of apply- 
ing a certain amount of labor, capital, and 
business management upon the soil will de- 
crease from season to season. If, then, corn, 
instead of wheat or cotton, is from season to 
season grown upon this soil, we will have the 
same tendency — decreasing returns. Wheat 
exhausts the wheat-nourishing properties, and 
cotton the cotton-feeding properties. For a 
time the properties which are required for the 
growth of corn are perhaps present in large 
quantities. The returns yielded to the labor, 
capital, and business management employed 
upon the soil will, therefore, for a time be large, 
perhaps increasing, but sooner or later these 
corn-feeding properties, like those of wheat or 
cotton, will begin to be exhausted and the re- 
turns to man's labor and capital will decrease. 

In these two cases we have assumed that the 
tendency to decreasing returns in farming is 



S8 PRINCIPLES OF WEALTH AND WELFARE 

due to the fact that the properties which nature 
suppUes are gradually exhausted and that the 
farmer does not attempt to replace them. Let 
him attempt to replace them, let him add more 
and more of labor, capital, and business man- 
agement to the acre as the seasons go by, and 
what of his returns ? He may for a time re- 
ceive more and more bushels or pounds per 
acre and per unit of the amount of the other 
agents of production employed, but the time 
will come when the increase in his harvest 
will not be in proportion to the increase in the 
agents he uses ; he will come to a point of di- 
minishing returns to his labor and capital. It 
will now pay him to employ a part of these 
agents upon other acres instead of those which 
he has been tilling. 

This tendency to decreasing returns, of 
which we have had two illustrations, is univer- 
sal. It not only applies to all uses of land, but 
it also applies to all the other agents of produc- 
tion, — to labor, capital, and business manage- 
ment, — though its application to land is possi- 
bly more universal than it is to any of the 
other agents. While this tendency has been 
declared to be universal, to be in all groups of 
production, it does not by any means prevail at 
all times in any one group. We have already 
said, that, by changing the crop or the method 



LAND A PRODUCING AGENT 89 

of tillage and fertilization, we may have for a 
time increasing returns, not only to the soil but 
also to the other agents employed upon it. In 
fact, all agents may at times have increasing 
returns or products, at other times constant re- 
turns, and at other times decreasing returns. 
The productive power of any of the agents is 
not an absolutely definite and permanent quan- 
tity and quality, and these agents are, there- 
fore, not equally productive at all times. 

Land and the Other Natural Forces. — We 
have spoken of certain natural forces which are 
at work in connection with land, — light, heat, 
and water. We have seen that a certain amount 
of these forces is necessary in all phases of pro- 
duction. These forces as mighty motive powers 
have, however, not always been employed in 
production. Though they have always existed 
in nature, it has been within very modern times 
that they have been localized and applied by 
man as the great propelling forces in produc- 
tion. Nature has always supplied these forces 
in abundance, but only recently has man made 
extensive use of them in his attempts to produce 
forms of wealth. For centuries and centuries 
he employed his own muscular energy or that 
of domestic animals as his motive power. It 
was not until the latter part of the eighteenth 
century that man began to make use of water 



90 PRINCIPLES OF WEALTH AND WELFARE 

as such a power and to apply its gigantic force 
to machinery. Machinery driven by water now 
works upon nature and her forces, and the prod- 
ucts are wonderfully multiplied. A great and 
vital change has come into our economic life — 
a fundamental revolution in our industries. 
During the next century, the famous nineteenth, 
water is transformed into steam and steam be- 
comes the magic power in all phases of produc- 
tion. With this new force comes a greater and 
far more wonderful life. This marvelous cen- 
tury has, however, not come to a close before 
another force of nature is handled and used by 
man to perform his tasks and to carry his 
thoughts to all parts of the world — electricity. 
This wonderful power is to revolutionize, 
time and again, our whole economic realm. 
The wasteful consumption of the water which 
propels our shafting and wheels, the wasteful 
and extravagant consumption of wood and coal, 
the powers of which are converted into heat and 
the heat into steam for the propelling of our 
machinery, — all of this enormous waste in the 
consumption of nature's energies is gradually 
being diminished. Man is becoming more and 
more economical in his use of these mighty 
forces. The energies of water, wood, and coal 
are now being converted directly into motive 
power — into electricity. 



LAND A PRODUCING AGENT 91 

QUESTIONS 

(i) How much does nature aid man in producing wheat, 
cotton, or houses? 

(2) Upon what does the productive power of an acre of 
land depend? 

(3) Will a man employ his lands in growing cotton, corn, 
or fruits ? 

(4) Will a man employ his lands for dwelling houses, 
business houses, or factories? 

(5) Is land an important element in your life and 
welfare ? 



CHAPTER IV 

CAPITAL A PRODUCING AGENT 

The Relation of Capital to Production. — We 

have already said that, in the production of 
utilities or forms of wealth, man works upon 
nature, not only by means of his own energy 
but also by means of certain instruments which 
make use of the mighty motive forces of nature. 
In order to produce utilities, on a large scale 
at least, man must work not only with land and 
natural forces but also with those instruments 
of production which we call capital. 

The Nature of Capital. — These instruments, 
as well as all the other forms of wealth, are the 
products of nature and man working together. 
They are in part produced by nature, and they 
always employ the powers of nature. They 
are also produced by man, but still they are not 
a part of his own being or qualities, they are 
not a part of his natural talent or acquired skill. 
Capital, while not a part of the individual's 
being, is a very important portion of his wealth. 
It is also one of the great instruments which 
he employs in creating more wealth. Capital, 
as well as land, is external to man, and both of 
these agents should be instruments for the 

92 



CAPITAL A PRODUCING AGENT 93 

promotion of welfare to himself and to his fellow- 
beings. They should never become the mas- 
ters of the individual or of society. 

Capital and labor may both be looked upon 
in an abstract way, as being abstract forces, but 
as producing agents they assume certain con- 
crete and definite forms. We may in an abstract 
sense use the term "labor," but in the actual 
production of wealth it is a laborer, not labor in 
the abstract, who helps to create utilities. Like- 
wise we may use the term " capital " in an ab- 
stract sense, but it is a certain and definite form of 
capital, a concrete body into which capital has 
embodied itself, which helps to produce wealth. 
Capital, in the shape of buildings, tools, ma- 
chines, rolling stock, raw material, finished 
goods, money, etc., — capital in these and many 
other forms is the agent of production. These 
forms of capital are constantly changing, though 
the abstract force is more or less permanent. 
And this characteristic is equally true of labor, 
as a producing agent. The forms of labor, the 
individual laborers, are continually changing, but 
labor, in some form, is more or less a permanent 
force. In fact, all agents of production are 
abstract and more or less permanent forces, but 
in creating utilities they work in tangible and 
concrete forms. 

Capital, How Productive: (a) Amount of. — Of 



94 PRINCIPLES OF WEALTH AND WELFARE 

capital in the abstract one unit is as productive 
as another unit. In the concrete, in the certain 
forms into which capital is embodied, one unit 
may be more or less productive than another 
unit, but only for a time. The ideal in the 
long run is equal productivity to all the units. 
In this particular capital is different, though 
only slightly, from labor and land as producing 
agents. The productive power of labor, as we 
have seen, depends upon the individual's capac- 
ity, the method of its use, the number of indi- 
viduals, and also upon the quantity of the other 
agents employed in connection with labor. Like- 
wise the productivity of land depends upon its 
fertility, the method and purpose of its use, 
its situation, its quantity, and the amount of the 
other agents used with land. The productive 
power of capital, on the other hand, depends 
much more largely upon its quantity, though 
the purpose and method of its use, as well as 
the amounts of the other agents, have much to 
do with its productivity. The growth of capi- 
tal is, therefore, a vitally important thing. The 
greater the amount of capital, other things be- 
ing equal, the greater its total productiveness. 
Growth of Capital. — During the many centu- 
ries prior to the nineteenth the increase of capi- 
tal was comparatively slow. There was during 
all these centuries much wealth produced, but 
there was likewise much of it consumed, either 



CAPITAL A PRODUCING AGENT 95 

by the individual or by the state. As compared 
with the production of wealth within recent 
years, little was, however, done by the ancient, 
mediaeval, and early modern peoples. Like- 
wise among these peoples the principle of sav- 
ing for the future was by no means strong. To 
them the economic future was not at all a cer- 
tain thing. They knew not at what moment 
their savings might be snatched from them, 
either by individuals or by the government, 
of which the people then had little part. 
Their failure to save for the future was due not 
only to the lack of security, but also to a lack 
of economic knowledge and foresight. Man 
did not then begin to realize the great and 
marvelous productive power of capital as an 
agent in creating wealth. Wealth, as he under- 
stood it, was to be consumed in the present, 
to satiate the present wants, rather than to 
be accumulated and saved for the future, to 
satiate future wants or to aid in producing 
more wealth. Increase in wealth and capital ^ 

1 Wealth includes capital and much 
more than capital. Capital is only the 
part of a man's wealth which is set 
aside, not for present consumption but 
for use as an agent in producing more 
wealth, for making an income. Let 
us illustrate this point by means of a 
diagram. The larger circle represents 
wealth, while the smaller one repre- 
sents capital. 




96 PRINCIPLES OF WEALTH AND WELFARE 

is, therefore, due to at least two sets of forces — 
to social and governmental security, and to in- 
telligence and foresight on the part of the 
individual. 

Let us trace the development and growth of 
these ideas and forces. 

(i) In the lower stages of eco7tomic civilization^ 
usually called the fishing and hunting or Indian 
stage, the idea of capital can scarcely be said 
to exist. There exists, however, among these 
primitive peoples certain forms of wealth and 
capital. Their instruments of fishing and hunt- 
ing are for them agents of production, though 
they perhaps hardly begin to appreciate the fact. 
Among such a people the growth of wealth 
and capital is, therefore, exceedingly slow, if 
indeed there is any increase at all. They care 
little for their economic future, and capital plays 
a very small and insignificant part in their life. 

(2) In a higher stage of civilizatio7i, when 
flocks, herds, lands, and mechanical appliances 
belong to man, when his tent has become a 
permanent structure of wood or stone, a home 
for himself and his family, the ideas of wealth 
and capital are far greater and more impor- 
tant. Capital is now beginning to be recog- 
nized as a productive power for the present and 
the future, and the future, because of more and 
more efficient government, is becoming much 



CAPITAL A PRODUCING AGENT 



97 



more certain and secure. Still labor and land ^ 
are the chief agents in the production of wealth. 
Among such a people the desire to save some- 
thing, to lay aside something of each day's 
products for future use, and to add to capital 
because it has productive power for them, 
is becoming stronger and stronger. In this 
stage man becomes a far greater economic 
factor ; his intelligence and welfare, as well as 
his capital, have greatly increased. He also 
becomes a better citizen in the society in which 
he lives and puts forth his activity and effort. 
The productive power and citizenship of the 
southern negroes, for instance, — and unfortu- 
nately for themselves and their communities 
many of them still live in the most primi- 
tive of all the stages of economic life, — will 
be greatly enhanced when they become the 
possessors of more wealth and capital. 
(3) There is still a 



higher stage of eco- 
nomic civilization^ 
popularly called in- 
dustrialism. In this 

1 Land, as we have said, 
may be regarded as a part of 
capital, but largely for the 
sake of clearness of thought 
we treat it under a separate 
head. 

H 



Q 



7^ 

/ CAPITAL I 



98 PRINCIPLES OF WEALTH AND WELFARE 

stage capital plays a more and more impor- 
tant and vital part; it becomes a great and 
powerful producing agent. Order and peace 
now prevail, and the economic future is more 
secure, since the government has become a per- 
manent and efficient institution. Pasturage 
and farming are no longer the all-absorbing 
groups of economic activity. Mining, manu- 
facture, transportation, and commerce are also 
developing. The miner and the manufacturer, 
the transportation agent and the merchant, all 
have need of much more capital than does the 
hunter, the keeper of flocks, or the tiller of the 
soil. Their need of capital is exceedingly great. 
They must have all of the mechanical appli- 
ances, tools, and machines, with which to make 
use of the mighty forces of nature as motive 
power; they must have great buildings, plants, 
and rolling stock ; they must have large quanti- 
ties of raw material and finished goods. In 
this stage we have, therefore, the greatest growth 
of capital and wealth. Man now produces 
more wealth, and though he consumes greater 
quantities of it, he saves much to be used as an 
agent in producing more wealth — to be em- 
ployed as capital. He accumulates wealth and 
uses a part of it as capital, and this capital makes 
it possible for him to produce more wealth. 
Capital, How Productive : (b) Form of. — In the 



CAPITAL A PRODUCING AGENT 99 

foregoing discussion we have for the most part 
assumed that capital in all of its forms is equally 
productive. As we have already said, this as- 
sumption is not by any means wholly true of 
capital in the actual business world, though it 
is in the long run the ideal or standard. Capi- 
tal embodied in cotton lands and their tillage 
produces more wealth at one season than at 
another. Capital employed in houses con- 
structed for the purpose of rent produces more 
wealth in one place than in another, and in the 
same location more at one time and less at 
another. Capital invested in the Southern Rail- 
way Company produces at times more than 
that used in the Great Northern Railway Cor- 
poration, while at other times it produces less. 
Capital, as a producing agent, is, therefore, in 
many respects like labor and land ; its produc- 
tive power depends to an extent upon the pur- 
poses of its use, as well as upon the amount 
of it and the method of its employment. 

Capital in the abstract is always mobile ; it 
can go without hindrance or loss from one 
group or subgroup of industries to another. 
Capital in the abstract moves from the place 
where it is least productive to the place where 
it is most productive. In its concrete form — 
in lands, houses, machinery, and goods, of vari- 
ous kinds — it is, however, by no means 
L. Of C. 



100 PRINCIPLES OF WEALTH AND WELFARE 

readily mobile, at least in many of its forms. 
Very frequently is it in such a shape that it 
cannot be changed from one form to another 
without great loss. To convert, within a few 
days, the capital invested in a cotton mill or 
that in a railway plant into another form is 
practically impossible. In a very general way, 
capital, land, and labor each competes within its 
own forms, and all these agents compete with 
each other. In a very general way they are, there- 
fore, all more or less mobile. They have the 
ability to move from one group of work which 
yields smaller returns to another group which 
yields greater returns, but it requires time, and 
even loss, for this movement on the part of 
either of these agents to take place. 

Capital, How Productive : (c) Method of using 
it ; Amount of the Other Agents. — We have seen 
that the productive power of capital depends 
upon its quantity and the form of its embodi- 
ment. This power also depends upon the 
method with which capital is employed and 
the quantity of the other agents at work with 
it. Its productiveness is largely dependent upon 
the raw material, labor, and business manage- 
ment used with it. Capital can produce no 
wealth whatever unless it can be employed 
with labor, both of the ordinary and the man- 
aging type. Man must use and manage this 



CAPITAL A PRODUCING AGENT lOI 

agent before it can produce wealth in any form. 
A locomotive, it makes no difference how 
strong and efficient it may be, cannot create 
transportation services without man to feed its 
furnace, oil its machinery, and guide its move- 
ment in speed and direction. And this loco- 
motive can produce but very little wealth when 
only one man is employed with it. Assign to 
it all the laborers needed for its care and guid- 
ance, its coal and water, the rails upon which 
it moves, and the bed necessary for their sup- 
port, and its products are a thousand fold 
greater. 

The method of using capital in connection 
with certain amounts of the other agents — 
labor, land, and business management — has 
assumed many different shapes. At one time 
capital exists in small quantities, and is used 
by the individual possessor to assist him in 
gaining a greater control over nature and her 
forces ; is used to aid him in producing utilities 
which can satiate his wants. At another time 
capital exists in greater quantities, and many 
individuals join together in the employment of 
it for agricultural, mining, manufacturing, trans- 
portation, or mercantile uses. We have the 
individual manager of capital as a producing 
agent. We have private partnerships and small 
corporations. We have also, and at present, 



102 PRINCIPLES OF WEALTH AND WELFARE 

to an enormous extent, the great joint stock 
corporations. Each of these organizations, as 
well as each individual manager of capital, is 
employing its capital for all uses and phases 
of production, and according to the plan and 
method which seem to bring the greatest 
possible returns for its productive powers. 

Capital and Capitalistic Production; Its General 
Results. — Throughout the history of all the 
stages of economic life there has been more or 
less of capital employed in the production of 
wealth, though at times the quantity has been 
exceedingly small and its application in the 
crudest possible manner. The bow and the 
arrow of the barbarous Indian are his capital, 
as are also the crude plow and the ox of the 
Southern negro. But capital was not for cen- 
turies and centuries a great agent of the pro- 
duction of wealth. In fact it has become a very 
great agent only within the last few decades, 
and for only a few of the more advanced sec- 
tions of the world. Throughout the vast ter- 
ritory of Asia and in many parts of Europe 
and the American continents, it is labor which 
is still the great and vitally important agent of 
production. In a very few places and in a very 
few groups of industry, however, capital man- 
aged by large business organizations has come 
to the front and is now the dominant force in 



CAPITAL A PRODUCING AGENT 103 

the production of all kinds of utilities. With 
the coming of capitalistic production, whether 
capital plays a dominant or only a very impor- 
tant part, has also come a profound revolution 
in the economic aspects of life, and in the politi- 
cal and social as well. Capitalistic production 
has radically changed the location and methods 
of industries, shifted population from one sec- 
tion to another, made rich and powerful indi- 
viduals and classes who were formerly poor and 
low. It has also added enormously to our 
wealth, and in a very considerable measure it 
has caused our welfare to be multiplied. 

QUESTIONS 

(i) How much wealth can a man without the aid of 
capital produce? 

(2) Why do you reserve a part of your wealth for future 
consumption? 

(3) Why does a man set aside a part of his wealth to be 
used as capital ? 

(4) Will a man make use of his capital in the cultivation 
of cotton or wheat, or in the building of factories or railways ? 

(5) Without capital is it possible for man to use machin- 
ery in the production of wealth ? 

(6) Without capital is it possible for man to use water, 
steam, and electricity as motive powers in the production of 
wealth ? 

(7) Does capital add to your welfare? 



CHAPTER V 

BUSINESS MANAGEMENT A PRODUCING AGENT 

Business Management in all Aspects of Produc- 
tion. — Without some form of organization, 
production on a scale worthy of mention is 
practically impossible. Primitive man, working 
by himself upon nature and producing a few 
simple products, is unorganized in his activity 
and effort, but his labor is, nevertheless, under 
some guidance, though it be that of his own 
undeveloped brain. There is in this case of 
production a semblance of business manage- 
ment. When this primitive man employs the 
labor of another man, or of several men, to 
work upon his land and with the capital which 
he possesses or has the use of, we have the 
principle of business management in operation 
upon a much larger scale. In all the aspects 
of production — in agriculture, mining, manu- 
facture, transportation, or commerce — we have 
another agent in addition to those which we 
have just considered ; w^e have business man- 
agement. In some phases of production this 
agent is a very minor one, while in others it is 

104 



BUSINESS MANAGEMENT 105 

the most important one. This agent is, there- 
fore, always at work, in some proportion or 

other. 

Importance of Business Management. — As we 

have seen, there is need of some business man- 
agement in the most primitive stage of economic 
life, even among the people who do not differ- 
entiate and specialize in their agents of pro- 
duction. As economic life becomes more 
advanced, and more extensive and complex, the 
agents of production become not only more 
important but also more specialized. Now four 
agents stand out as more or less separate and 
distinct, and each of these agents begins to 
subdivide itself into many groups and sub- 
groups. We now have many different grades 
of labor, and each grade is employed along a 
different line of work. We have land used for 
the cultivation of wheat, corn, cotton, trees, 
etc., as well as for all the various kinds of 
building, mining, and transportation uses. We 
have also capital invested in lands, tools, ma- 
chines, and goods, each of manifold varieties. 
Modern economic life, in the phases of both 
consumption and production, has seen differ- 
entiation and specialization carried to a wonder- 
fully great degree. And with all these changes 
in economic life has come a greater need for a 
directing and connecting force — for business 



I06 PRINCIPLES OF WEALTH AND WELFARE 

management in its various forms. The wants 
and demands of the consumer have become 
very extensive and complex, and the problems 
of the producer, in order to supply utilities 
which can satiate these wants, have grown to 
enormous proportions. The demand for a 
guiding force, which can adjust all of the agents 
and instruments of production to each other 
and to the demands of the consumer, has be- 
come so great, that business management has 
come to be one of the greatest forces of the 
whole economic realm. 

Work of Business Management. — Not only 
are the problems of the producer, in order to 
meet the changing demands of the consumer, 
becoming greater and more complex, but many 
of the forces and methods of production are 
also at the same time changing. Labor, land, 
and capital are, as we have seen, always chang- 
ing in both quantity and quality. The problem 
of their supply as compared with the demand 
for them is ever, therefore, a most difficult one. 
The business manager must assume all the risks 
of producing goods which will meet with the 
favor of the consumer, which will satiate his 
many and even fickle wants. The demands of 
the consumer, in whom fashion is a constantly 
changing force, can never be exactly calculated. 
To produce goods in quantities sufficient to 



BUSINESS MANAGEMENT 107 

supply these demands and not to glut the 
market, to use a term which is so well known 
on the market, is a problem of exceedingly 
great difficulty and importance. 

This is, however, only one of the producer's 
many most perplexing problems. He must not 
only supply the consumer's present wants but 
also help to create in him new and different 
wants. He must likewise adjust to each other 
all of the agents of production of which he 
makes use, and this is a very delicate task. In 
order to sell his goods to the consumer, and 
make profits from their sale, he must, as a rule, 
produce them at a minimum cost. If the pro- 
ducer is in a field in which there is strong com- 
petition, in which he must compete with other 
able producers for the favor of the consumer, — 
and this is more or less the true condition of 
most producers, — he must produce his goods at 
a lower cost in order to outsell his competitors. 
If the producer is a monopolist, if he entirely 
controls the supply of a certain goods, and, 
therefore, has no present competition, he like- 
wise must produce at a minimum cost. He 
must produce his goods at a low cost in order 
to sell that quantity which will bring maximum 
profits. He is most certainly aware of the fact 
that the consumer's demands vary inversely with 
the price which the producer asks for his goods. 



I08 PRINCIPLES OF WEALTH AND WELFARE 

He is also very eager to keep out a future 
competitor. All producers, as a rule, are, there- 
fore, striving to produce their articles at the 
lowest possible cost and to sell them to the 
consumer at the highest possible price. To do 
this requires the greatest possible skill in man- 
aging the agents and forces of production, as 
well as the demand of the consumer. 

The business manager, in order to produce 
his goods in the most economical way, is ever 
making experiments with his agents and forces 
of production. How much labor of one grade 
of skill and how much of another he shall em- 
ploy with a certain quantity of land and capital, 
is to him a daily problem of no small conse- 
quence. How much capital in one machine or 
instrument and how much in another, this is like- 
wise a vitally important and constant question. 
Shall he employ negroes or whites, non-union 
or union laborers ? Shall he make use of the 
muscular strength of man and animals as a 
motive power ? Shall he use water, steam, or 
electricity? Shall he produce one kind of 
manufactured goods or another? Shall he 
create transportation or commercial services ? 
Shall he produce upon a small or upon a large 
scale ? These are some of the many problems 
which always confront business management, 
and in solving some of these problems the 



BUSINESS MANAGEMENT 109 

modern business realm has produced such 
managers as Carnegie and Rockefeller, indus- 
trial captains the like of which the world has 
never before seen. 

Business Management, How Productive. — 
That there is an overwhelming need of business 
management in every field and phase of the 
production of wealth, is now^ clear. It is like- 
wise manifest that management is a producing 
agent, that it creates a part of every conceivable 
article of consumption, and adds utility to every 
article. The productiveness of this agent, like 
the productiveness of labor, land, and capital, 
depends upon its own qualities or inherent 
properties, the amount of these qualities, the 
method employed in making use of these, and 
the quantity and quality of the other agents 
employed with them. The inherent properties 
of this agent are, however, different from those 
of the other agents ; they are far more mental. 
To be sure, the properties of the common 
laborer as an agent of production are to a de- 
gree mental, but their productive power is very 
largely dependent upon the amount of muscular 
and nervous energy and strength which the 
individual laborer possesses. The productive 
power of the business manager is, on the other 
hand, much more dependent upon his mental 
skill in dealing with the very complex, physical, 



1 10 PRINCIPLES OF WEALTH AND WELFARE 

and mental wants of the consumer and with all 
the manifold and complicated aspects of the 
agents and forces of production. It depends 
very largely upon the manager's judgment con- 
cerning men and things and his foresight in the 
business world. The productive power of busi- 
ness management likewise depends upon the 
quantity of itself and of the other agents which 
it can make use of — the quantities of labor, 
capital, and land — and also upon the forms 
and methods which the management adopts. 

Business Management, How Productive: (a) 
Quantity and Quality of Management and the Other 
Agents. — As we have already said, there is a 
certain amount of business management in all 
of the aspects of the production of goods, 
whether in one field or in another, and whether 
upon a small or upon a large scale. That the 
productiveness of this agent depends upon its 
quantity as well as its quality has been assumed. 
Let us, however, make some further statements 
concerning this point. It is very easily con- 
ceivable that in a certain group of production 
there can be too much of management, that is 
as compared with the quantities of the other 
agents employed in this group. This concep- 
tion is in the main very ideal. In actual busi- 
ness there is most often too little of this agent. 
An increase in the quantity and quality of 



BUSINESS MANAGEMENT III 

business management in most groups of work 
is, therefore, greatly to be desired. It means 
greater and greater productive capacity and 
consequently a greater and greater production 
of wealth. 

As yet in our wonderful economic develop- 
ment we have not upon the whole produced 
commodities of this class in excessive supplies. 
We have, to be sure, produced an enormous 
quantity of business management of a high 
grade, but we have need of a still greater quan- 
tity of it. We have increased our supplies of 
labor, land, and capital, at almost a marvelous 
ratio, and these ever increasing supplies of the 
other agents of production have created an ever 
increasing demand for managing ability. The 
fact that many of our great industrial corpora- 
tions are paying an individual for managing 
ability a salary ranging from ^50,000 to $100,- 
000 per year, is unmistakable evidence that 
business management, at least of the highest 
type, does not exist in too great quantities. 
This fact is also partial evidence that manage- 
ment is a very extraordinary producing agent, 
for in many instances these individual managers 
produce much more than they receive in salaries. 

The productiveness of management also de- 
pends to a great extent upon the amount of the 
other agents employed with it. Let us illustrate 



112 PRINCIPLES OF WEALTH AND WELFARE 

this point. The manager of a farm of one hun- 
dred acres, upon which are worked one hundred 
agricultural laborers and upon which is em- 
ployed $20,000 of capital, cannot produce for 
himself a ten-thousand-dollar salary, it makes no 
difference how extraordinary may be his manag- 
ing ability. If, on the other hand, he assumes 
the management of a much greater number of 
acres, of a much greater quantity of labor and 
capital, he may produce goods or utilities val- 
ued at twice the above-mentioned salary. The 
amount produced in either case will depend 
upon the quantity and quality of his managing 
ability, his productive capacity, and upon the 
quantity and quality of the other agents em- 
ployed. 

Business Management, How Productive: (b) 
Form of Management. — The forms of business 
management are varied, but for the most part 
they are of the following types : individual, pri- 
vate partnership, private corporation or company, 
and joint stock corporation. The individual 
may manage his own enterprise, of whatever 
kind, by himself. He alone assumes all the 
responsibility, bears all the losses, adjusts the 
forces of production and consumption, and re- 
ceives the pay for his managing ability, as well 
as the profits, if there are any. This individual 
may unite with another individual, in a partner- 



BUSINESS MANAGEMENT 113 

ship, to use the legal term, and two persons in- 
stead of one now supply the managing talent 
required. Several persons may combine their 
managing ability, as well as their capital, into a 
private company. The business may be carried 
on by all the members of the company or by 
certain members chosen for this purpose by the 
whole body. 

The most important type of the organization 
of business management is, however, the joint 
stock corporation. It is this form which has 
played so great and distinguished a part in our 
economic life and thought within the last few 
years. This form of business organization is 
much more permanent than the others ; it 
is, in fact, a practically permanent institution. 
The individual and partnership managers die, 
and their business enterprise comes to an end. 
This is also more or less a characteristic of the 
private corporation. But the joint stock cor- 
poration goes on, though managers after man- 
agers disappear, and though certain individual 
members of the corporation pass away. Not 
only is this form of business management, as a 
rule, much more permanent, but it is also much 
larger. It possesses and commands the use of 
much more capital and business talent than 
can any of the other forms of business manage- 
ment. Its capital is not confined to that of a few 



114 PRINCIPLES OF WEALTH AND WELFARE 

persons and the amount which they can for a 
time borrow. It is made up of the capital of 
many managers and of the public to a greater or 
less extent, for any individual may purchase the 
bonds and stocks of the corporation. Under 
such a form of management the capital is sup- 
plied by many, at times by many thousands of 
individuals, and the responsibilities of the busi- 
ness are assumed by all the stockholders. But 
the stockholders, being too numerous to carry 
on the business, must select certain ones of 
their number as managers — called directors, 
president, secretary, treasurer, and committees. 
Form of Business Management : (i) Small or 
Large Scale Production. — The productive power 
of business management depends not only upon 
its quantity, quality, and the form of its organi- 
zation, but also upon the scale of production. 
And the scale of a business enterprise is largely 
the product of management, not of labor, land, 
and capital ; it is primarily management which 
determines the scale of production, whether 
small or large. To be sure, the amount of 
capital and the other agents have much to do 
with this scale, but the most important factor in 
it is management. For the most part produc- 
tion has been in the past upon a small scale, 
but within the last quarter of a century the 
tendency to large scale production has been 



BUSINESS MANAGEMENT 115 

very marked. The chief reason of this ten- 
dency, to production on a larger and still larger 
scale, is the fact that such production brings 
increasing returns not only to the management 
but also to the other agents employed. It means 
cheaper and cheaper production, and produc- 
tion at a lower cost is desired by consumers and 
producers alike, for it increases, or at least tends 
to increase, the welfare of the one and the profits 
of the other. 

Increasing Returns of Production on a Large 
Scale. — The savings or economies in the produc- 
tion of goods on a large scale are many and 
varied. We can here mention and discuss in 
merest outline only a few of the more important 
ones. The large organization or plant, to use 
a business term, can make a distinct saving in 
its raw^ material. It can make use of all the 
by-products, which a small plant cannot use 
to advantage and sets aside as waste. The 
large plant can also employ the best and most 
specialized machines, and the best machines 
produce at the lowest cost. It can afford to 
make many and costly experiments with its 
machines, displacing many older ones, in order 
to find out the better and cheaper ones. The 
small plant cannot afford to do these things. 
The larger plant may likewise make use of the 
most skilled labor; it can afford to employ 



Il6 PRINCIPLES OF WEALTH AND WELFARE 

highly speciaHzed and skilled laborers who 
work exclusively along their own special lines. 
The small plant must make use of one laborer 
for several lines of work, and consequently 
cannot use his labor to the point of greatest 
advantage or in the most economical way. 

While these savings or economies are great, 
they are by no means all of the advantages 
which the large producer has over the small 
one. The large producer buys in greater quan- 
tities, and, therefore, secures his raw material at 
a lower price. He also buys his transportation 
and drayage services at a lower cost. In sell- 
ing his finished goods to the consumer the large 
producer has another advantage, a saving both 
to himself and the consumer: he can always 
supply the demand, and though he may sell in 
large quantities, he can sell at the highest price. 
The small producer cannot always supply the 
demand, and in consequence he cannot sell his 
goods at the highest price. Production, on a 
large scale, therefore, tends to bring increasing 
returns, while that on a small scale tends, all 
things being equal, to decreasing returns. 

All of these economies of large scale pro- 
duction of which we have just spoken depend, 
however, upon the success of the business man- 
agement, and in this particular the smaller or- 
ganization has a distinct advantage over the 



BUSINESS MANAGEMENT 117 

larger one. The management of the large cor- 
poration is most often divided and subdivided, 
and of necessity so. In this management, di- 
vided as it is and must be, there is much less 
of unity of action, there is much less of personal 
responsibility in the individual managers and 
submanagers, and there is much chance for 
friction and dishonesty. In short, the very size 
and complexity of its management may at times 
become a great element of weakness and loss 
instead of one of strength and gain. The 
gigantic business corporation of to-day may 
become subject to decreasing returns, as much 
so as the small producer. Its very magnitude 
may become its greatest disadvantage and 
danger. 

Form of Business Management: (2) Monopoly 
Production. — The form of business manage- 
ment, whether upon a large or a small scale, 
may be monopolistic or competitive, and both 
types are as old as management as a producing 
agent, as old as civilized man. The idea of a 
monopolistic corporation is not, therefore, nec- 
essarily based upon its size, as is so thoroughly 
believed by the masses, but upon the unity of 
its management. While monopoly production is 
oftentimes large scale production, still unity 
of control in the production of certain goods, 
and this control being made complete and 



Il8 PRINCIPLES OF WEALTH AND WELFARE 

exclusive as far as the production of the goods is 
concerned, is the fundamental idea underlying 
all monopoly management. 

But a complete and exclusive control by the 
producer of certain goods over the consumer of 
them is practically impossible. The control 
of their production may become exclusive, 
though this does not often happen, but the 
control of the producer over the consumer really 
never becomes complete and exclusive. The 
consumer is never a slave to the producer of 
any one kind of articles of consumption ; he has 
freedom not only to choose the quantities of 
the articles which he consumes, but also to 
choose the kind of goods with which to satiate 
his wants. We can more easily understand this 
point by examining an illustration. An electric 
company in a certain city may for the time have 
complete control of the manufacture and sale of 
electricity in this city, but this monopoly pro- 
ducer can never compel the people to buy its 
goods or services. The consumer may use gas 
or oil for lighting purposes, may use the muscular 
strength of animals or steam for motive power, 
and he will most certainly do this if the electric 
company charges very excessive prices for its 
goods. Suppose the electric corporation en- 
larges itself so as to include under its unified 
management the gas company and the steam 



BUSINESS MANAGEMENT 1 19 

power companies. Its control is now greater 
and more complete, but it is not yet absolute, 
even over the production of its goods, to say 
nothing of the freedom which the consumer still 
has in the choice of the kind and quantity of 
goods for his consumption. If the consumer 
has no other goods from which to choose, and 
he is seldom forced into such a situation, he 
will consume less of these articles, in case the 
monopoly producer by virtue of its more or less 
complete control over their production charges 
him a very high price for them. Throughout the 
whole realm of production, while there is much 
of the practical monopoly type, there is little, 
if indeed any, of the absolute monopoly type. 

Kinds of Practical Monopoly Producers. — As 
we have just said, the monopolistic form of 
business management is very old, though in the 
popular mind it is a distinctly modern institu- 
tion. Almost throughout the history of govern- 
ments, we find the monopoly producer who 
may be called the legal monopolist, and this 
form of business management is in fact created 
by the state. By virtue of a charter or other 
document issued by the government, certain 
persons are given the complete and exclusive 
control of the production and sale of certain 
articles of consumption. At one time monop- 
olies of this type have been very numerous 



120 PRINCIPLES OF WEALTH AND WELFARE 

and powerful. At another time they have played 
only a very insignificant part in production. 
To-day, though we have many of this class of 
monopolistic producers, the government at 
Washington issuing many monopoly-conferring 
documents bearing the name of patents and 
copyrights, they do not contribute a great part 
to our production of wealth. 

But we have another class of monopolies, in 
the creation of which the state takes no direct 
part; we have a monopoly formed by nature 
and man which may be properly called the 
naturalistic monopoly. Nature has so highly 
localized a few of her valuable mineral products, 
as for instance the anthracite coal of the United 
States, which is found largely in a few adjoining 
counties of Pennsylvania, that man by means 
of his managing talent and capital can more or 
less monopolize the production and sale of them. 
As yet, however, this product is by no means 
monopolized ; the largest coal producer does 
not control more than 50 per cent of the Ameri- 
can output of hard coal. Railway transporta- 
tion, by the inherent nature of its business and 
the routes it makes use of, may also be some- 
what unified in its control, though it is the 
managing ability and the capital of men, rather 
than nature, which are the great and vital forces 
in its unification. 



BUSINESS MANAGEMENT 121 

We have also a third class of the monopoly 
producer, and we may name this the capitalistic 
one. To be sure, capital and management play 
great and leading parts in all these classes, — 
in the legal, naturalistic, and capitalistic ones, — 
but in the last type of monopoly they constitute 
the most fundamental factors. It is this class 
which has played so important and distinguished 
a part in our great industrial development of 
the last quarter of a century. It is this class 
which bears the popular and odious name of 
trusts. It is to this type that the famous and 
powerful Standard Oil and the United States 
Steel corporations belong. Brains and capital, 
working together under the all-pervading mod- 
ern spirit of combination and concentration, 
have been the creators of this form of produc- 
tion, and they are likewise the very arteries and 
blood of all the other large forms of production, 
whether monopolistic or competitive. 

In neither the naturalistic or the capitalistic 
monopoly is the control of the producer exclu- 
sive. The control of the most powerful ones is 
only from 65 per cent to 95 per cent complete, 
while that in the less unified ones is only from 
50 per cent to 65 per cent complete. Such a con- 
trol as this, however, gives the manager great 
influence in the production and sale of all the 
goods of his special kind and quality, — in fact 



122 PRINCIPLES OF WEALTH AND WELFARE 

gives him almost a practical monopoly, so far as 
he and the other producers have power over 
these goods. 

Form of Business Management: (3) Competi- 
tive Production. — So strong has been the recent 
tendency, in our own country at least, to the 
formation of the monopoly organization, and so 
powerful have some of these organizations be- 
come, not only in their influence over other 
producers of the same kind and grade of goods 
and the consumers of these goods, but also in 
social and political life, that pubHc opinion has 
been aroused against them to an exceedingly 
high pitch. So great has become the mo- 
nopoly principle of production that, in the minds 
of many people, the principle of competition has 
become endangered. And to this principle of 
competition have been assigned very wonderful 
properties. It is popularly supposed to possess 
the magic power to stimulate to greater activity 
and effort, as well as to cure all the wrongs in 
the whole realm of the production of wealth. 

Will this principle, which to the minds of 
many seems so marvelous, and which upon the 
whole promotes the welfare of man, be anni- 
hilated ? Will the monopoly idea alone control 
in production ? What the great future may 
bring forth we dare not exactly predict. As yet 
among the producers, competition, either of the 



BUSINESS MANAGEMENT 123 

active or potential ^ kind, is still busily at work. 
In the year 1900, there were in the United 
States of the monopoly form of producer called 
trusts less than two hundred, and we have had 
this principle at work more vigorously and to a 
greater extent than has any other country. Their 
total annual output was then valued at about 
^1,660,000,000, while the total annual output 
of all the American factories was worth about 
$13,000,000,000. This means that in that year 
the competitive manufacturer produced goods 
valued at about eight times as much as those 
produced by the monopoly manufacturer. Since 
1900 there has been an enormous increase in the 
monopoly form of production, but still the mo- 
nopolistic producer works only along a compara- 
tively few lines. He produces transportation 
services. He also produces certain staple 
articles, such as steel and iron, sugar, oil, to- 
bacco, gas, and electricity. In agriculture and 
commerce he has as yet played an insignificant 
part. We may with good reason expect more 
and more of the monopoly idea of production, 
for it means as a rule cheaper and cheaper 
production, but we may likewise expect that 
the men of the future will produce also along 

^ We mean by potential competition, that which may at any 
time organize, embody itself into some form of production, and be- 
come active, though at the present it exists only in the minds of a 
few business men. 



124 PRINCIPLES OF WEALTH AND WELFARE 

the lines and according to the principle of 
competition. 

Form of Business Management: (4) Socialistic 
and Cooperative Production. — The productive 
power of business management has been very 
greatly increased by the principle and practice 
of combination ; combination of managing 
ability has brought wonderful strength and 
efficiency. And the rewards of such forms of 
management have come to be enormously great. 
At times these rewards represent in fair meas- 
ure the productivity of management. At other 
times the manager by virtue of his high position 
in production takes for himself too large a part 
of each article produced ; he pays the other 
agents — labor, land, and capital — less than 
they earn or produce. 

This tendency to greater and greater pay to 
business management, whether it be fair or not, 
has brought forth much discussion of the meth- 
ods of management and much feeling against 
these methods. So strong has this feeling at 
times become that we have formulated a science 
of economic life, called socialism, which de- 
mands an almost complete and fundamental 
reorganization of society and its business forms 
and methods. The points of chief attack by 
the advocates of the new science are land, capi- 
tal, and management. It is by them contended 



BUSINESS MANAGEMENT 125 

that the first two of these instruments of pro- 
duction should belong entirely to the state, that 
the laborer should supply his own management, 
and that he should have the use of land and 
capital, in quantities as great as he desires, at a 
price no larger than that which is necessary to 
replace the wear and tear of them. This social- 
istic system is, however, upon the whole so 
visionary and its foundation so unreal, that we 
shall not attempt to discuss at any length its 
means and methods of production. That some 
of its demands have been granted, no one can 
deny. Governmental ownership and manage- 
ment of certain fundamental and universal in- 
dustries, as the postal, telegraph, and railway 
systems, and governmental regulation and con- 
trol of many private industries,— all this is abun- 
dant proof that our present system of production 
has incorporated into itself not a few of the ideas 
of the socialistic system of production. 

There are other reformers who demand some 
changes in our present system of production, 
but by no means such radical ones as those for 
which the socialists are calling. They believe 
in the fairness and the soundness of the private 
ownership of land and capital. They fully rec- 
ognize that land, capital, and business manage- 
ment, as well as labor, are producing agents. 
They, however, believe that common labor, as 



126 PRINCIPLES OF WEALTH AND WELFARE 

well as managing labor, should enjoy the profits 
of production. 

According to their plan, the workers together 
with the employers are to manage the business, 
to assume all of the risks and enjoy all of the 
products ; all are to bear their parts of the losses 
and receive their parts of the profits. If the 
cooperative plan of production, as it is called, 
can ever be successfully carried out, the problems 
of the distribution of wealth will become much 
easier, and wealth will be distributed with far 
greater fairness to all the parties involved. That 
such a condition is to be greatly desired, we shall 
find abundant evidence under the section treat- 
ing of the distribution of wealth. Whether the 
cooperative plan of production can accomplish 
such an end is, however, a highly debatable ques- 
tion. The principle of employer and employee 
working together, all assuming the burdens of 
management and sharing its products, while in 
some respects attractive in theory, has so far 
worked with only very slight success. Coop- 
erative management has as yet been seriously 
lacking in unity; it has been attended by much 
discord and failure. It, like the extreme demo- 
cratic government, in which one man is equal to 
another, soon becomes a management of a cha- 
otic type. We must have more and more of the 
spirit of conciliation, of steadiness and honesty 



BUSINESS MANAGEMENT 12; 

of work, and of obedience to those who by merit 
are our superiors, before such a scheme of pro- 
duction, on a large scale at least, can ever be 
successfully put into operation. 

QUESTIONS 

(i) Is there an equal need of business management in 
farming, manufacturing, mining, railroading, merchandising, 
and banking? 

(2) Why is one business manager paid only ^1000 a 
year, while another business manager receives ^75,000 a 
year? 

(3) Suppose you are a cotton manufacturer. Would you 
produce cotton cloth upon a small or upon a large scale? 

(4) Suppose you are the manager of a railway corpora- 
tion. Would you produce railway service upon a small or 
upon a large scale ? 

(5) Would you prefer to manufacture goods under com- 
petitive conditions or monopoly conditions ? 

(6) Do large corporations add to the welfare of your 
community ? 



C. ASPECTS OR GROUPS OF PRODUCTION 
CHAPTER VI 

AGRICULTURE AND MINING PRODUCERS OF 

WEALTH 

Aspects or Groups of the Production of Wealth. 

— We have now completed our analysis of the 
agents and forces which are at work in the pro- 
duction of wealth. We have found that labor, 
land, capital, and business management are the 
chief factors or agents in all the aspects or 
groups of production. It is now necessary to take 
these aspects into our consideration, and to 
make a careful analysis of them. The produc- 
tion of wealth divides itself into the following 
general groups, which are more or less distinct : 
agriculture and mining, manufacture, trans- 
portation, and commerce. 

Agriculture and Mining the First Aspect of 
Production. — The history of mankind is full of 
testimony to the effect that agriculture and 
mining are the most universal phases of eco- 
nomic activity and effort. In the most primitive 
stages of life above that of the savage and bar- 

128 



AGRICULTURE AND MINING 129 

barian, the tillage of the soil and the digging 
of minerals deposited beneath its surface are 
the most universal of all the occupations. In 
the most advanced industrial stasre that the 
world has yet developed, these same aspects 
of production occupy the energies and thoughts 
of the larger number of men. 

Agriculture is still to-day, as it has always 
been in our own country, the most dominant 
aspect of business life. The culture of corn, 
hay, cotton, and wheat, to say nothing of the 
enormous number of the other agricultural prod- 
ucts, is the absorbing occupation of millions 
of people ; and it is the one group of produc- 
tion in which vast quantities of land, capital, 
and business management are employed. From 
the American fields of agriculture come the 
food supplies of more than seventy-five million 
Americans, and of millions of the inhabitants 
of other countries. From the Southern cotton 
fields alone come more than 70 per cent of all 
the raw cotton fiber of the world. 

The mining industry of the United States, 
while not so universal and absorbing as that of 
agriculture, is one of our greatest fields of eco- 
nomic activity and effort. The extraction from 
the earth of coal, iron, copper, gold, petroleum, 
silver, and thousands of other mineral products 
employs the productive power of enormous 



130 PRINCIPLES OF WEALTH AND WELFARE 

quantities of all the agents of production and 
places upon the markets of the world values 
amounting annually to hundreds of millions of 
dollars. 

Vital Importance of this Aspect or Group of 
Production. — Production in all of its higher 
aspects is absolutely dependent upon this group 
— that of agriculture and mining. From this 
group of production and its subgroups come 
all the raw materials out of which are created 
the manifold forms and qualities of our wealth. 
From the fields of agriculture come all of the 
numerous varieties of our foods; and they range 
from the coarsest vegetables, breads, and meats 
to the most delicate morsel. Our articles of 
clothing, of whatsoever form and degree of fine- 
ness, come from the raw materials which are 
supplied by the farms, largely by the cotton 
fields and sheep pastures. Our houses, tools, and 
machines, of any form and quality, and our fuel, 
in the shape of wood and coal, — all these forms 
of wealth come from the forests and the mines. 

The Forms of Wealth created by Agriculture 
and Mining: Elementary Utilities. — As we have 
already suggested, the forms of wealth or utili- 
ties which are created in this group of pro- 
duction are elementary. The products of the 
agriculturist and the miner are, therefore, ele- 
mentary titilittes. This group of production 



AGRICULTURE AND MINING 131 

brings forth the supply of the raw material of 
the world ; and this raw material, though for 
the most part of the simplest and most ele- 
mentary forms, is the foundation upon which 
all the other forms of wealth are constructed. 
Let us consider some illustrations. The piece 
of beautiful Swiss embroidery, that sells on 
the market for $20, is made of a pound of North 
Carolina cotton which sells for 12 cents. The 
still more beautiful lace, that sells for more 
than ^100, is made of a pound of South Carolina 
cotton which sells for 15 cents. The most deli- 
cate dish of the fastidious millionaire is made 
upon the foundation of Dakota flour, which sells 
at 4 cents a pound. The magnificent locomo- 
tive, which carries a train of cars from New 
York City to Chicago in seventeen hours, is 
constructed out of the simple iron taken from 
the Pennsylvania mines. 

Agriculture and Mining, How Productive: 
Method and Organization. — That method and 
organization play a vitally important part in the 
productive power of each agent of production, 
we have already agreed. That they should play 
a great part in the products of any group of 
production, needs no special argument. The 
farmer, who tills his soil by means of his own 
hands and the crudest tools, reaps but a small 
product. But the farmer who employs upon 



132 PRINCIPLES OF WEALTH AND WELFARE 

his lands, in addition to his own labor, a suf- 
ficient quantity of all the other agents, — a 
sufficient amount of capital and business man- 
agement, — reaps a much greater product for 
himself and the other agents. Labor and capi- 
tal employed upon the cultivation of agricultural 
products, just as much as labor and capital 
used in any other group or subgroup of pro- 
duction, create products largely in proportion 
to the method of their employment. And this 
method is determined by the farmer as a busi- 
ness manager, rather than by the farmer as a 
laborer. Business management is, therefore, a 
vitally important agent in agriculture. It is 
this agent which determines the amount of 
capital used upon the soil in the shape of 
machinery and fertilizers, which determines the 
kind of crop planted, and which determines the 
number and efficiency of the laborers employed. 
On every hand we see farmers who, though 
they toil with all of their physical energies, 
reap exceedingly small harvests. They do not 
use a sufficient amount of skill, intelligence, 
and judgment, and these qualities are just as 
necessary in the group of production called 
agriculture as they are in any other group. 

Method and organization are just as vitally 
important in mining as they are in agriculture. 
The miner who employs nothing but his mus- 



AGRICULTURE AND MINING 133 

cular strength and energy and a crude pick 
brings forth from the depths of the earth only a 
small product. But the miner who makes use 
of capital in the shape of the most efficient 
machinery, who makes use of managing intelli- 
gence and judgment, as well as muscular 
strength and energy, produces great and valu- 
able quantities of mineral products. 

QUESTIONS 

(i) Why is agriculture the first and most important as- 
pect of production on the part of almost every people? 

(2) Is it possible for the agriculturist to become a 
millionaire ? 

(3) A man has two adjoining cotton plantations of exactly 
the same size. Upon one is grown one hundred bales of 
cotton; upon the other fifty bales. Why the difference? 

(4) Are the minerals of our country of great importance 
and value? Could we do without them? 



CHAPTER VII 

MANUFACTURE A PRODUCER OF WEALTH 

Vital Importance of Manufacture. — The vast 
quantities of raw material which are suppHed by 
the agriculturist and miner must be transformed 
into higher form utilities before they can be of 
greatest service and pleasure to man. The 
consumer does not eat wheat in its raw or 
elementary form. It must be transformed by 
the miller into flour, and the flour must be con- 
verted into bread. Raw cotton fiber cannot 
satiate man's want for clothing. It must be 
carded, spun, and woven ; it must be made into 
some form of cloth before man wears it upon 
his body. From the cotton fields it must go to 
the gin, where the fiber is separated from the 
seed. From the gin it must go to the carding 
room, where the fiber is straightened. From 
the carding room it must go to the spinning 
machine, where this straightened fiber is 
stretched and twisted into thread or yarns. 
From the spinning machine it must go to the 
loom, where it is woven into cloth. From the 
weaving room it must go to the bleaching and 

134 



MANUFACTURE 135 

dyeing rooms, where it receives the desired 
color. In all of these stages is the manufac- 
turer ; in all of these stages is the man who by 
means of all of the agents of production trans- 
forms, time and again, the elementary forms of 
cotton until they become the thousands of vari- 
eties of the higher forms of cotton fabric. This 
life history of the cotton fabric is substantially 
the life history of every other kind of finished 
goods. 

The Forms of Wealth created by Manufacture : 
Higher Form Utilities. — As we have already said, 
production is a process of creating forms of 
things, not material things themselves. As 
production creates utilities, rather than material 
things, so consumption makes use of these 
utilities ; and neither process creates or destroys 
matter. The agriculturist and miner produce 
forms of utilities or wealth which we call ele- 
mentary. The manufacturer changes these 
elementary forms into higher forms ; he creates 
the higher form utilities. Let us illustrate this 
point. The farmer produces forms of wealth 
called raw cotton, and these forms are now sell- 
ing on the market at 1 1 cents a pound. The 
manufacturer, by changing one pound of this 
raw material or elementary form into its high- 
est forms or utilities, produces a product which 
sells for hundreds of dollars. The farmer in 



136 PRINCIPLES OF WEALTH AND WELFARE 

producing the raw cotton fiber creates value in 
it. The manufacturer in transforming this raw 
material into higher forms creates more and 
more value in it ; and the value he creates in it 
depends upon the form of his products. 

Manufacture, How Productive: Method and 
Organization. — We have seen that method and 
organization are great factors in the production 
of wealth, whether of one group or another. 
They play vital parts in all the aspects of hu- 
man life, in the political, intellectual, religious, 
as well as in the economic aspect ; the imple- 
ments of work and the method of their employ- 
ment are fundamentally important in all the 
aspects of human life and activity. The manu- 
facturer, or he who changes the elementary 
forms of wealth into their higher forms, is pro- 
ductive largely in proportion to the method 
according to which he works. In the trans- 
formation of goods from lower forms into higher 
forms, he employs labor, land, capital, and 
business management, and the product of each 
of these agents depends upon its inherent 
productive power, upon its supply as compared 
with the demand for it, and upon the method 
of its employment. The manufacturer, who 
makes use of unskilled and inefficient labor and 
business management, and uses antiquated and 
inefficient tools and machines, produces a small 



MANUFACTURE 1 37 

amount, and he in consequence produces his 
goods at a high cost. But the manufacturer, 
who makes use of the greatest possible skill 
and efficiency in his labor, machinery, and 
business management, produces a great prod- 
uct, and at a lower cost per unit of goods. 

Whether the organization of manufacture 
shall be large or small depends to a considerable 
degree upon the special line of production. 
The advantages and disadvantages of produc- 
tion upon a large scale as compared with those 
of production upon a small scale, we have al- 
ready considered. These advantages and dis- 
advantages we have examined under the head 
of business management as a producing agent. 
Under that head we have stated that produc- 
tion upon a large scale is as yet confined very 
largely to only two general groups or aspects 
of production — to manufacture and transpor- 
tation. As yet agriculture and commerce 
remain groups of production in which the 
organization of business management is for the 
most part very small. And in the group which 
we call manufacture the organization is by no 
means universally large. In fact large scale 
manufacture exists only in a few special fields 
— in the production of some of the very neces- 
sary and staple goods, such as iron, steel, 
oil, gas, sugar, etc. In many of the fields of 



138 PRINCIPLES OF WEALTH AND WELFARE 

manufacture the organization of business man- 
agement is still small. That a more intelligent 
method would greatly aid many of these small 
manufactures, needs no discussion. That the 
principle of combination and concentration, if 
intelligently applied, would also greatly add to 
their productivity seems to us to be equally 
apparent. 

QUESTIONS 

(i) Abolish all the manufactures of the United States, 
compel all of the American people to become producers of 
raw material. How would our life be affected ? 

(2) The Southern states grow annually from ten to thir- 
teen million bales of raw cotton. Suppose that all of this 
vast quantity of raw material could be manufactured in the 
Southern states. What effect would this have upon Southern 
life? 

(3) What effect do skilled laborers and efficient machines 
have upon the manufacture of cotton, iron, steel, gas ? 

(4) What effect would combination and concentration 
have upon the manufacture of cotton in the South? in New 
England ? 



CHAPTER VIII 

TRANSPORTATION A PRODUCER OF WEALTH 

Fundamental Importance of Transportation. — 

As we have said, economic life is largely social, 
both in the aspect of the consumption of wealth 
and that of its production. The production of 
wealth is especially a social process. No 
one producer can live unto himself alone. The 
Robinson Crusoe producer, or consumer, has 
never existed in actual life; his existence is 
only imaginary. Man in the business realm 
possesses, to be sure, his own individuality, but 
this individuality is surrounded by other individ- 
ualities. These economic beings, as consumers, 
have their many and varied wants, and they 
likewise have their various abilities as producers, 
whether they work upon nature by means of 
their own energy alone, or by means of capital, 
as well as their own energy. 

Some few consumers may produce the kind 
of utilities which their simple wants demand 
and in sufficient quantities to satiate these wants, 
but in an economic society which is at all ad- 
vanced and complex it is absolutely impossible 

139 



140 PRINCIPLES OF WEALTH AND WELFARE 

for any individual consumer to produce all, or 
even many, of the goods for which his wants 
call. He should certainly produce as much 
wealth in some form or other as he consumes ; 
otherwise he robs the society in which he lives. 
But that he should produce the exact form of 
the goods he consumes is not at all necessary, 
and this would for the most part be a wasteful use 
of his energy and the other agents of production 
which he employs. Under the modern system of 
producing wealth, and also in the more advanced 
systems of the ancient or mediaeval peoples, 
one man produces as much of a special form of 
wealth as his energy and the other agents which 
he possesses can produce; and another man, situ- 
ated in a different location and amid different 
natural forces and social surroundings, produces 
as much of another goods as his energy and the 
other agents of which he makes use can pro- 
duce. It may be that the special products of 
each man are in part consumed to satiate his 
own wants. But what becomes of the surplus ? 
The other man has wants for it and will con- 
sume it, if he can obtain possession of it. It 
may be, however, that both of the individual 
producers create goods which they do not need 
in the satiation of their own wants. What 
becomes of their products? Other men, the 
producers of other goods, have wants for these 



TRANSPORTATION 141 

and will consume them, if they can obtain 
them. The transportation of these various 
surplus products from one producer to another, 
from producer to consumer, is, therefore, a most 
vitally important problem. 

Relation of Transportation to the Production of 
Wealth : Place UtiUties. — Transportation is not 
only a fundamentally important element in our 
economic or business life, but it is also a pro- 
ducer of wealth. And as a producer, a trans- 
portation system makes use of all the agents of 
production of which we have spoken. It has 
need for labor, land, capital, and business man- 
agement, and each of these agents produces 
a part of every transportation service. By way 
of illustration, let us consider the railway. The 
service of the Southern or the Pennsylvania 
railway, in transporting an individual man or a 
pound of cotton cloth from one place to another 
place one mile distant, is in part due to the labor 
of the company, in part due to its land, its capi- 
tal, and its business management. 

Let us put these four agents to work upon 
an acre of cotton lands, in a cotton factory, 
and in a railway system. In the culture of 
cotton these agents produce utilities which we 
call elementary in their forms. In the factory 
some of these simple and elementary forms are 
made into higher forms ^ into all kinds of cotton 



142 PRINCIPLES OF WEALTH AND WELFARE 

fabrics. These elementary forms must be 
transported from the farm to the factory, and 
the finished fabrics must be taken from the 
factory to the consumer, or to the merchant, 
who acts as an agent for the consumer. In 
either case, transportation has not only rendered 
a service, but it has also produced in the goods 
certain utilities ; it has added utilities both to the 
raw cotton fiber and the finished cotton fabric. 
It has carried these goods from a place in 
which the demand for them is small to a place 
in which the demand for them is great. 
These utilities, which the transportation agent 
creates, we call place utilities. And in our 
economic realm goods are not completely and 
finally produced until they are placed at the 
door of the consumer of them. 

Relation of Transportation to Producer and Con- 
sumer; Satiation of Old Wants and Creation of 
New Wants. — Transportation not only adds 
values to certain goods, — creates place utilities 
in these goods, — but it also creates more and 
more wants for the goods. It is just as mighty 
a force to the consumer as it is to the producer. 
It is in itself, as we have already said, a pro- 
ducer of goods or utilities. And the producer 
is both the master and the servant of the 
consumer. Let us consider an illustration. 
The breakfast table of the consumer may now 



. . TRANSPORTATION I43 

be supplied with fruits grown in every quarter 
of the globe and during various seasons of the 
year. Until very recent times the daily want 
for fruits on the part of the consumer could 
not possibly be satiated ; the consumer himself 
could produce only a few varieties of fruits, and 
that too only for a very short season. A great 
and complicated transportation system must be 
worked out and put into successful operation 
before the consumer in New York City can 
daily enjoy the products of Florida and Maine, 
of Europe and Africa, of South America, and all 
the other parts of the globe. Transportation 
is, therefore, the greatest mechanism of bringing 
producer and consumer together, and is con- 
sequently one of the greatest means of eco- 
nomic progress and civilization. It has always 
been and will continue to be among the world's 
most universal and powerful means of producing 
wealth and welfare. 

Transportation, How Productive : (a) Instruments 
of. — That the productive power of transporta- 
tion depends upon its means or instruments of 
transportation, as well as upon their extent and 
equipment, requires no argument. But what 
are these means ? Sleds, carts, and wagons, 
drawn by animal power, have always been in- 
struments of transportation. And boats and 
ships, propelled by man's muscular power or by 



144 PRINCIPLES OF WEALTH AND WELFARE 

the mighty forces of wind and steam, are means 
of transportation as old as man himself, and 
they are still most important instruments. 
It is the modern steam or sail ship, which is 
the instrument whereby all goods are trans- 
ported across large bodies of water — lakes, 
seas, and oceans. It is also the instrument of 
transportation along rivers and canals. The 
most important and extensive modern instru- 
ment of transportation is, however, the railway, 
either of the steam or the electric type. While 
many of the other instruments of transportation 
are very old, this means is distinctly a modern 
one ; its whole life covers less than a century. 
Though the most modern of all the instru- 
ments of transportation, its development has 
been the most marvelous and its productive 
power the greatest. The steam railway system 
of our own country, though it had its beginnings 
in 1828, had by 1900 grown to a mileage of about 
200,000, and it was possessed of all the equip- 
ment necessary for such a mileage. 

The Railway System of the United States a Fun- 
damental Instrument in all the Aspects of our 
Life. — This railway system has not only had a 
marvelous growth within itself, but it has also 
been one of the greatest of all our means of 
production ; it has been one of the greatest 
factors in our truly wonderful economic develop- 



TRANSPORTATION I45 

ment. It has aided and stimulated all the 
aspects of our life. In fact, it has revolution- 
ized it. It has bound together into one eco- 
nomic community a vast and varied territory. It 
has made it possible for the farmer to explore 
new acres, the miner to discover new beds of 
minerals, and the manufacturer to produce new 
supplies. It has been the magic power in caus- 
ing towns and cities to spring into existence 
and in making many individuals prosperous 
and rich, while the lack of its facilities has 
caused others to remain poor. The railway 
system of our country has not only accom- 
plished this much, but it has also concentrated 
and unified the intellectual, political, and social 
aspects of our life. It has caused the Atlantic 
section to be joined with the great valley of the 
Mississippi, and it has bound these two vast 
regions to the far West. It has had much to 
do in making all of this vast and highly 
diversified area into one government and one 
people. 

Transportation, How Productive: (b) Form of 
Organization and Management. — The form of 
business management in transportation, — in 
the production of place utilities, — as in the 
other groups of production, is of vital impor- 
tance. The very organization of the transpor- 
tation facilities is in itself a great producing 



146 PRINCIPLES OF WEALTH AND WELFARE 

agent, and this is especially characteristic of 
long distance overland transportation. This 
fact has been proven time and again by our own 
experiences. In the early history of the Ameri- 
can railways, in fact during the first fifty 
years of their existence, we had no less than 
hundreds and thousands of different systems. 
Each small road was independently managed ; 
it had its own schedules, rules, and rates ; and 
the trains of one system made no connections 
with those of another system. The time re- 
quired for the transportation of passengers 
and freight from Boston to Washington, for 
instance, was necessarily very long, and the 
cost of this transportation, including the cost 
of many transfers from one system to another, 
was in consequence very great. Such a system 
was beyond any doubt most inefficient. It was, 
to be sure, better than no railway transporta- 
tion at all, but the very form of its business 
management was a great hindrance to its pro- 
ductive power. There was no unity of manage- 
ment. There was also little thought on the 
part of the management to serve the larger 
interests of the producer and the consumer, 
and both of these were demanding better and 
greater transportation facilities. 

The time, however, came when the railway 
managers must yield to such demands, must 



TRANSPORTATION 147 

make attempt to supply such wants, and they 
themselves began to recognize the great pro- 
ductive power of a new and larger form of busi- 
ness management. Now we have the principle 
of combination and concentration vigorously at 
work in the railway world. Many small inde- 
pendent roads are now combined into one 
large system. And this process of combination 
has gone on and on, until at present we 
have in the entire United States but six 
or seven different systems, and these sys- 
tems have more or less of an agreement 
as to schedules, rates, and connections. To- 
day we can cross our vast continent without 
a change of cars and within the remarkably 
short space of three days. More than this, 
the whole system of inland transportation has 
within a short period increased its efficiency a 
thousand fold. While this increase of produc- 
tivity has brought great returns to the trans- 
portation managers, it has also brought great 
returns to the consumers of transportation serv- 
ices. The saving in time is by no means the 
only economy, for rates of transportation 
have greatly decreased. It now costs less to 
go from New York to San Francisco than it 
did forty years ago to go from New York to 
Chicago. 



148 PRINCIPLES OF WEALTH AND WELFARE 

QUESTIONS 

(i) How much is the consumer of beef influenced and 
benefited by transportation services? 

(2) How much is the producer of sugar influenced and 
benefited by transportation services ? 

(3) Do railways produce wealth? 

(4) Do railways produce welfare? 

(5) Would you prefer that we have many independent 
and disconnecting railroads or one great system of railroads? 

(6) There are at present in the United States six or 
eight great systems of railways. Do you think that these 
great combinations are for our wealth and welfare ? 



CHAPTER IX 

exchange: commerce — a producer of wealth 

Vital Importance of Commerce. — We have 
just seen what a great and vital part transpor- 
tation plays in the production of wealth. But 
along with transportation, and in vitally close 
connection with it, there is another very impor- 
tant instrument or means of producing wealth ; 
and this we call commerce or exchange. This 
group of production is also fundamentally and 
vitally connected with those of agriculture and 
manufacture. In consequence of the difference 
in individual capacity and in natural and social 
surroundings, different economic persons and 
localities can produce certain products much 
more efficiently and cheaply than they can 
others. If these different products can with 
facility be exchanged, both the consumer and 
the producer of them will be very greatly bene- 
fited. Without such exchange of goods be- 
tween persons and communities economic life 
remains primitive and undeveloped. In the past 
there have been individuals, and there are still 
not a few, who produce practically every article 

149 



150 PRINCIPLES OF WEALTH AND WELFARE 

which they consume. They make few exchanges 
of products ; they are economically self-sufficient 
and independent. But such people, however, 
have no economic, social, or intellectual prog- 
ress. They are " Jacks-at-all-trades," and be- 
come proficient and skilled in none. They do 
not specialize in their activity, and consequently 
fail to acquire that efficient skill which comes 
alone from specialization. 

Commerce in Relation to Production : Time 
Utilities. — The modern tendency everywhere is, 
however, toward a greater and greater specializa- 
tion in the production of products and a greater 
and more extensive exchange of products. The 
individual possesses special aptitudes and skill, 
as well as special powers of nature with which to 
work. He has great varieties of creative power, 
of soil, climate, and mineral deposits. One man 
can produce certain goods at the minimum cost, 
while another can produce the same goods at 
the maximum cost. The ideal is unquestionably 
for each producer to make that form of goods 
which he can make best and cheapest, and for 
each producer to exchange with the other. And 
as man becomes more and more civilized and 
far-seeing, this tendency becomes stronger 
and stronger. But for such an ideal to be 
realized, even in small part, it is necessary to 
have both transportation and commercial facili- 



EXCHANGE: COMiMERCE 151 

ties. The transportation agent may carry prod- 
ucts from place to place, thereby creating in 
them place utilities, but this instrument alone is 
not sufHcient. There must also be the ex- 
change agent, the merchant as he is called in 
popular speech. This agent must act as an in- 
termediary between producer and consumer, and 
must keep the goods in storage until the con- 
sumer's demands for them are strongest. This 
agent creates utilities in the products, and these 
utilities we call time utilities. 

Commerce in Relation to Producer and Con- 
sumer; brings them together and creates Time 
Utilities. — Commerce is, therefore, a means of 
bringing the producer and the consumer to- 
gether. But transportation is another means 
of accomplishing the same result. In fact, 
these two aspects, while separated in our dis- 
cussion, and to an extent in actual business, 
are very closely and vitally allied with each 
other. Transportation without a system of ex- 
change would be impossible, and exchange 
would be equally impossible without facilities 
for transportation. It is the modern commer- 
cial agent who, by means of the transportation 
systems, goes to the ends of the earth in search 
of products which are demanded by the con- 
sumer ; he brings producer and consumer closer 
and closer together; he causes the economic 



152 PRINCIPLES OF WEALTH AND WELFARE 

world to be combined and concentrated into 
one community, so to speak ; he plays the 
guiding and leading part in the exchange of 
goods, whether upon small and local markets, 
or upon national or international markets ; and 
he delivers goods of all conceivable kinds and 
qualities at the very door of the consumer 
and receives from him the price. This agent 
is not only an intermediary of producer and 
consumer, but he is also himself a producer of 
utilities in goods. He produces in every prod- 
uct a part which we may call time utilities. 

By way of illustration, let us assume that one 
pound of raw cotton is grown by the North 
Carolina farmer at a cost of seven cents, — that 
is, the farmer, by means of his labor, land, capital, 
and management, produces in this cotton fiber 
elementary utilities which are valued at seven 
cents. The transportation and exchange agents 
add utilities to this pound of raw material, which 
are valued, let us say, at three cents. The manu- 
facturer then pays for the raw fiber, when deliv- 
ered to him, ten cents. By changing its form, 
time and again, he creates in this raw material 
utilities which are valued at twenty-five cents, 
and he then sells to the merchant for thirty-five 
cents the total utilities which the cloth contains. 
The transportation and commercial agents create 
more utilities in the cloth, giving to it more 



EXCHANGE: COMMERCE 153 

place and time utilities, which are valued at 
fifteen cents, and they sell its total utilities to 
the consumer for fifty cents. The farmer, the 
manufacturer, the transportation and the com- 
mercial agents — all these factors are the pro- 
ducers of the cotton fabric which the consumer 
buys. 

Commerce and its Mechanism ; Systems of 
Transportation, Weights, Measures, and Money. 
— As we have already said, the producer of 
commercial utilities is an agent of the producers 
of all the other utilities, as well as of the 
consumers of all utilities. This agent, by means 
of transportation facilities, causes the products 
which the consumer wants to be moved from 
place to place, as well as keeps them in his own 
storehouses until the consumer needs and de- 
mands them for his immediate consumption. 
In a large sense, therefore, the transportation 
machinery of a country is an important part 
of its commercial mechanism. There is great 
need, however, for much more machinery of 
exchange. There must by all means be stand- 
ards of weights and measures — common 
standards of measurement for all the products 
which are exchanged between the producer and 
the consumer. And in a community, which is 
at all complex and extensive in its economic 
wants, activity, and effort, its manifold products 



154 PRINCIPLES OF WEALTH AND WELFARE 

cannot always with convenience be exchanged 
with one another. There must also be a com- 
mon standard of the values of the products 
which are exchanged ; there must be a unified 
system of money. In this extensive exchange 
of products there are many abuses and evils, 
and for the correction of these we must have a 
vast body of economic legislation. The laws 
defining and regulating the weights, measures, 
and money of a people are of necessity exceed- 
ingly numerous and important. 

Commerce, Domestic and Foreign. — The ex- 
change of products may be confined to a single 
nation, and this commerce we may call do- 
mestic. In a great and vast country like our 
own the domestic exchange is perfectly enor- 
mous. Our home or domestic exchange of 
products amounts to the gigantic sum of 
about $25,000,000,000^ a year. Our commerce 
with the peoples of other nations, while very 
considerable, is as yet very small when com- 
pared with that of our own people ; it is not 
more than one ninth as great in volume. In 
England, on the other hand, the foreign com- 
merce is, perhaps, much more extensive and 
important than is the domestic. In either 
country commerce is a wonderfully great pro- 
ducing factor, and the rewards of its productive 

^ These figures are only approximately accurate. 



EXCHANGE: COMMERCE 155 

powers are divided between the producers of 
the utilities and consumers of them. 

In an economic sense there is, therefore, Httle 
difference between internal and foreign com- 
merce. In a political sense there is, however, 
a distinction to be made, which is more or less 
important. In the exchange of products be- 
tween citizen and citizen of the same govern- 
ment the ideal is that of the most perfect 
freedom. In the commerce between citizens 
of one nation and those of another, while free- 
dom of exchange has in its favor the presump- 
tion of advantage, there are many interests, 
largely of a political nature, which must be 
taken into serious consideration before it can 
become the rule of practice. In the past there 
has been much hindrance to international or 
foreign exchange. While great freedom has 
prevailed in domestic trade, tariffs upon tariffs 
have hindered foreign exchange. An analysis 
of these hindrances is, therefore, of the most 
vital importance, but it cannot just here be 
made; later the reasons for tariffs will be ex- 
amined.^ 

Exchange in Appearance for Money ; in Reality 
for Products. — This exchange of goods, whether 
domestic or foreign, seems to be for money, but 

1 See the chapter which is devoted to the state as a producer 
of wealth. 



156 PRINCIPLES OF WEALTH AND WELFARE 

in reality it is an exchange of products for 
other products. In 1901 the United States, 
for instance, apparently exported goods in ex- 
cess of her imports to the enormous value of 
#665,000,000. On the face of it, this great sum 
would seem to indicate that other nations paid 
to us in one year more than half a billion dol- 
lars of gold. The fact is, however, that we 
received from abroad that year only a very 
small amount of gold or other money. Of this 
enormous amount, there remained in Europe 
about $100,000,000^ to pay dividends to Eu- 
ropean holders of American stocks and bonds, 
and to pay interest on capital borrowed by us 
from abroad ; about $50,000,000 to pay freight 
charges to Europeans, largely Englishmen, for 
conveying goods to and from our ports ; about 
$75,000,000 to pay American tourists' expenses 
in Europe; almost $100,000,000 for American 
investments in European bonds ; $75,000,000 for 
overstanding debts ; a considerable amount to 
balance the sums sent home by European la- 
borers working in the United States ; and about 
$225,000,000 remained in Europe in exchange 
for American bonds and stocks formerly held 
by Europeans and now returned to us to be 
sold at higher prices. When all these large 
amounts, and other smaller ones which we have 

1 These figures are largely estimates. 



EXCHANGE: COMMERCE 157 

not mentioned, were taken from the total ap- 
parent excess, there was only a small balance in 
our favor to be paid in gold. 

England, on the other hand, had during 1900 
an excess of her imports of goods over her ex- 
ports to the enormous amount of $ i , 1 30,000,000. 
This apparent gigantic balance against her was 
not, however, paid in gold. She paid this vast 
sum by the earnings of her ships employed in 
the international trade of the world, by the 
earnings of her money loaned and her insurance 
sold abroad, by the earnings of London Ex- 
change which still has great productive power, 
and finally by the profits accruing from her 
manufactured products sold to the consumers of 
the four corners of the globe. 

Commerce, How Productive: (a) Conditions in 
the Other Groups of Production. — That the pro- 
ductive power of a commercial system is largely 
dependent upon the conditions of prosperity in 
all the other aspects of economic life, we have 
assumed. And that this assumption is a cor- 
rect one follows from the very nature and func- 
tion of commerce. The amount of exchange 
depends upon the amounts of goods produced 
and demanded. A great failure among the 
producers of the elementary or higher form 
utilities, as well as a great falling off in the 
demand for these utilities, has a profound 



158 PRINCIPLES OF WEALTH AND WELFARE 

influence upon the commercial man. A failure 
of the cotton crop of the Southern states 
seriously affects, not only the Southern cotton 
farmer, but also the merchant and his ally, the 
transportation agent, throughout our own vast 
country, yes, even throughout the cotton-con- 
suming world. Commerce, as well as trans- 
portation, is, therefore, profoundly influenced 
by economic conditions; and these conditions 
are in turn fundamentally and vitally influenced 
by the productive power of commerce and all 
of its mechanism. 

Commerce, How Productive : (b) Ability of the 
Commercial Agent and Form of his Management. — 
The success of commerce also depends greatly 
upon the individual capacity of its agent and the 
form of its management. The task of produc- 
ing the maximum of place or time utilities, and 
of supplying most thoroughly and economically 
the transportation and exchange wants of man, 
is one of the greatest and most complicated in 
the whole economic realm. The individual 
who has the energy, judgment, foresight, and 
imagination to perform this task is upon the 
simple ground of merit to be ranked with the 
world's greatest personalities. And in the per- 
formance of this task many different forms of 
business management have been used. In the 
exchange of goods we have as yet comparatively 



EXCHANGE: COMMERCE 159 

little of the principle of monopoly, and the 
scale of management is for the most part much 
smaller than is that of the manufacturer or the 
transportation agent. Many competitive or- 
ganizations, of both small and large proportions, 
carry on our commerce. 

Commerce, How Productive : (c) Mechanism of 
Commerce. — We have already considered the 
great advantages which an efficient transporta- 
tion system can bring to the commercial agent. 
We have likewise seen that for the exchange of 
products there is a great demand for a uniform 
system of weights and measures. This demand 
for uniform weights and measures, according to 
which all the goods of the people of a nation 
are measured, has been readily and efficiently 
supplied by the government. And over these 
wants there has been little popular agitation 
and discussion. But over the mechanism called 
money and banking there has been a long series 
of agitations and battles, and these problems 
are not yet by any means solved. A discussion 
of this mechanism and its problems will be 
made in the two following chapters. 

QUESTIONS 

(i) Are you as a consumer of flour influenced and bene- 
fited by the merchant? 

(2) Is the producer of wool influenced and benefited by 
the merchant? 



l6o PRINCIPLES OF WEALTH AND WELFARE 

(3) Do merchants exchange goods for money or for 
other goods? 

(4) What does a uniform system of weights and measures 
have to do with trade or commerce ? 

(5) What benefit is there to commerce in a sound and 
efficient system of money ? 



CHAPTER X 

EXCHANGE : MONEY A STANDARD OF VALUE 

A PRODUCER OF WEALTH 

Importance of Money; its Chief Features. — 

We have already seen that there is, in the 
exchange of products, great need of a com- 
mon standard of value. Commerce, as well 
as all the other aspects of production, has 
a key, and this key is value. Value as an 
abstract idea is, however, of very little impor- 
tance in the business world ; it must be em- 
bodied in some concrete form, in some standard 
of measurement common to all, before it 
can unlock all the countless economic situa- 
tions. It is the money of a nation that is this 
common standard of value, as well as the com- 
mon medium of exchange. It is these two 
features of money — a standard of value and a 
medium of exchange — that give it a position 
of such fundamental and vital importance in all 
the aspects of economic life. 

A Standard of Value also a Medium of Ex- 
change.— As a standard of value, money is 
almost as important as the language of a people. 



M 



i6i 



1 62 PRINCIPLES OF WEALTH AND WELFARE 

As language is the means of the expression of 
all its feelings and thoughts, so money is the 
common measure of all its economic forces ; 
it measures as a yardstick all its economic 
motives. As a standard of value, money is 
likewise a producer of utilities. It greatly 
facilitates every aspect of production, — that 
of the farmer, miner, manufacturer, transporta- 
tion agent, and especially that of the merchant. 
The feature of money as a standard of value 
can never be entirely separated, either in 
thought or in actual use, from that of money 
as a medium of exchange. That which is 
established by a people as its common standard 
of value serves also as one of the media of its 
exchanges. And money as a medium of ex- 
change is almost as vitally important as money 
as a standard of value. It is the medium of 
the transmission of all the economic forces, 
very much as blood in the animal body is the 
medium of the transmission of vital or life- 
giving forces. 

The Properties of a Standard of Value. — From 
the very nature and purpose of a standard of 
value, it follows that the commodity which is 
adopted as such a standard should possess 
(i) ci great degree of universality; it should be 
widely used as an ordinary commodity of con- 
sumption. It should also possess (2) a high 



EXCHANGE: MONEY A STANDARD OF VALUE 163 

degree of exchangeability^ for, as we have said, 
the standard of value must also possess use as 
a medium of exchanges, use as currency to 
speak in commercial terms. The standard of 
value should likewise possess (3) the property of 
being easily transported fro7n place to place. 
And there is need of still another property, 
that is perhaps more vitally important than 
that of any of these which we have just men- 
tioned ; the standard should be (4) as stable in 
its value as possible. 

There can, however, be no absolutely perfect 
standard of value. No commodity whatsoever 
possesses all the properties required for such a 
standard, at least for a people whose economic 
life is ever changing, as that of most modern 
peoples is. Every goods or commodity which 
can be selected as a standard of value, whatever 
it may be, is variable in its value. Its variable- 
ness depends upon causes which affect itself, 
such as its supply and the demand for it, and 
these forces never remain the same for any 
lensth of time. Its variations in value likewise 
depend upon causes which affect the value of 
the other commodities with which the standard 
is compared, such as the supply of these com- 
modities and the demand for them. 

Gold as a Standard of Value. — What, then, shall 
be taken as such a standard.^ What, then, shall 



164 PRINCIPLES OF WEALTH AND WELFARE 

be taken as the standard of value and also as 
one of the media of exchanges? In the history 
of man, that commodity has been selected as 
the standard of value which at the time possesses 
more nearly all of the properties that we have 
considered above than does any other commod- 
ity. Wampum, labor, tobacco, silver, gold,— 
each of these commodities has at one time or 
another been adopted by the American people 
as their standard. The European nations also 
have adopted as standards of value a variety of 
commodities. But to-day almost all of the great 
peoples of the world have declared gold to be 
their standard; and of all the commodities, which 
have so far been used as standards of value, gold 
is perhaps the most suitable, since it possesses 
more nearly all of the required properties. Its 
use for ordinary purposes in jewelry, plate, and 
instruments is quite universal. It is easily and 
cheaply transported from place to place. It is 
readily accepted in exchange, and with all these 
properties it at present possesses more stability 
of value than does any other known commodity. 
The Gold Dollar the American Standard. — 
While practically all of the larger nations have 
within recent years adopted gold as their stand- 
ard of value, and in this respect they have all 
worked out the same results, still each nation 
has its own peculiar unit of value, its own 



EXCHANGE: MONEY A STANDARD OF VALUE 16$ 

amount of gold as a standard. In our country 
Congress years ago declared 23.22 grains of 
pure gold to be our standard, and gave it the 
name of dollar. And in all of our countless eco- 
nomic transactions this unit, a gold dollar, is the 
common measure. The economic motives and 
acts of the producers of our whole economic 
realm, as well as of the consumers, are gauged 
by this unit. 

The Relation of the Standard of Value to Prices ; 
All Prices in Terms of the Standard. — We have 
assumed that the relations of the producer and 
the consumer are best expressed in prices. And 
this assumption will be analyzed when we come 
to consider the market and market prices. 
A price is, however, something more than an 
expression of the forces of the producer and the 
consumer when they balance each other on a 
market. It is also an expression of these forces 
in terms of the common standard of value, 
which a people has adopted for its convenience 
and use. The price of every article bought 
and sold within the entire United States is in 
terms of the gold dollar. Let us illustrate this 
point. We mean by ten-cent cotton that ten 
pounds of it are equivalent to one dollar of gold. 
Four-cent flour means that twenty-five pounds 
of it are equivalent to one dollar in gold. 

That the quantity of gold, as of any other 



1 66 PRINCIPLES OF WEALTH AND WELFARE 

commodity of consumption, varies from time 
to time is well known. The activity and effort 
required for its extraction from the earth, the 
amount of capital, machinery, and business man- 
agement employed in its mining and purifica- 
tion, are factors which vary both in quantity and 
quality. The supply of gold is, therefore, not 
an absolute quantity. The demand for it, just 
as the supply of it, also varies from time to 
time. The demand for any commodity what- 
ever is not, as we have already seen, a perma- 
nent and unchanging force ; the desires and 
wants of man, whether created by natural forces 
alone or by natural and social surroundings, 
vary in both quantity and quality. At times 
the wants for gold in the forms of jewelry, plate, 
instruments, etc., are great and very intense, 
while at other times they are small and less in- 
tense. These variations in the supply of and 
the demand for gold, and they are of many 
kinds and degrees, cause variations in the mar- 
ket value of gold. 

And these variations in the value of gold — 
the standard of value in all the American ex- 
changes or trades — cause variations in the 
prices not only of the standard commodity 
itself, gold, but also of all the other commodi- 
ties. A change in the market value and price 
of American gold necessarily causes changes 



EXCHANGE: MONEY A STANDARD OF VALUE 167 

in the market value and price of cotton, wheat, 
electricity, and all the other American products 
of whatever kind. But this is not all. All the 
other commodities are always changing, more 
or less, in their supply. One year we have ten 
and a half million bales of cotton, while another 
year the cotton crop amounts to more than 
thirteen and a half million bales. The number 
of yards of silk manufactured varies from month 
to month and from year to year. Not only, 
then, does the supply of the other commodities 
vary, but the demand for them is also always 
changing. These changes in the supply of 
and demand for the other commodities cause 
changes in the market value and price of these 
commodities, even though we assume that gold, 
the standard, is unchanging in its market price, 
and this assumption is not correct. The mar- 
ket prices of all the other commodities besides 
gold are, therefore, subject to two sets of forces, 
are liable to changes from two sets of causes : 
those which affect their own supply and de- 
mand ; and those which affect the supply and 
demand of gold, the standard commodity in 
terms of which all the other commodities are 
measured. We, therefore, have changes in the 
prices of the other commodities because of vari- 
ations in their own supply and demand, and 
also because of a rise or fall in the price of gold. 



l68 PRINCIPLES OF WEALTH AND WELFARE 

Double or Single Standard of Value. — It fol- 
lows from the above considerations that, with 
any one single standard of value, even though it 
be the most perfect, we have variations in the 
prices of all goods. Changes in the prices of 
goods, and as a rule they are many and frequent, 
are not to be desired by producer or consumer. 
A fairly stable market is a blessing to all, pro- 
vided the stability does not come as a result of 
stagnation in the business world. With a sin- 
gle gold standard, and gold is thought to pos- 
sess the greatest stability of value of any known 
and widely used commodity, we have sufficient 
variations in prices. What would be the result of 
having tw^o standards, as, for instance, gold and 
silver? From the analysis of prices, which we 
have already given in outline and which we 
shall later treat in much greater detail, we have 
seen that prices vary in consequence of the in- 
crease or decrease in the supply of and demand 
for goods, and also in consequence of the in- 
crease or decrease in the supply of and demand 
for gold. If we have two standards of value in- 
stead of one, the variations in prices will, we be- 
lieve, become greater and greater. The silver 
standard, as well as the gold, will vary in its 
prices, increasing or decreasing, as its supply 
and demand change. With two standards of 
values or prices, and each one with its own 



EXCHANGE: MONEY A STANDARD OF VALUE 169 

independent variations, there must be more 
changes in prices than there would be with 
only one standard of values. 

Single Standard the Ideal; Less Fluctuations 
in Prices. — It is, however, contended that the 
variations in the values or prices of the two 
standards will of themselves mutually regulate 
each other, and that in consequence two stand- 
ards will mean a more stable market, less and 
less fluctuations in prices, than could be the 
case with only a single standard. Such a con- 
tention is not sustained, it seems to us, by the 
facts of the past. Bimetallism, as the double 
standard has been called, has had a long trial. 
Many of the European countries had such a 
standard for centuries, and our own people 
gave it a trial for almost a hundred years. The 
world's experience has been to the effect that it 
is practically impossible to maintain the legal 
ratio of the standards — the ratio of exchange 
between the standards fixed by the government. 
The government must not only establish the 
unit and its value in each metal, but also estab- 
lish the ratio at which the units of one metal 
must be accepted in exchange with the units of 
the other metal. The famous saying " Sixteen 
to one " means that the government should 
adopt a gold standard of value, a gold dollar 
composed of 23.22 grains of pure gold, and a 



I/O PRINCIPLES OF WEALTH AND WELFARE 

silver standard of value, a silver dollar com- 
posed of 371.52 grains of pure silver, and that 
one dollar of gold must always be accepted for 
one dollar of silver and vice versa. The mar- 
ket ratio between these two metals as commodi- 
ties may be at the time of the passage of such 
a law sixteen to one. But the world's experience 
has shown that the market ratio, and this is the 
one regulated by the economic forces of the 
producer and the consumer, rarely ever re- 
mains for any length of time the same as that 
fixed by law. The business world will not long 
exchange silver and gold at exactly sixteen to 
one, though the government attempt to compel 
it to do so by the legal tender provision.^ The 
actual ratio of exchange is at one time sixteen 
to one, at another time fifteen and a half to one, 

and at still another time sixteen and a half to 
one. 

Gresham^s Law: the Dearer Standard Disap- 
pears. — The world's experience is, that it is not 
only practically impossible to maintain the legal 
ratio between the two standards, — and numer- 
ous have been the attempts to do this, — but 
that it is also practically impossible to keep 
two standards in actual operation. In conse- 

^ The legal tender provision requires a creditor to accept from 
a debtor gold or silver at the ratio fixed by law, not at their mar- 
ket value or ratio. 



EXCHANGE: MONEY A STANDARD OF VALUE 171 

quence of the changes in the value of the stand- 
ards, and over these changes the government 
has exceedingly little influence, one standard 
becomes dearer and the other cheaper. And the 
cheaper standard has always driven the dearer 
one more or less out of existence ; and the re- 
sult has been that, while in theory there are 
two standards of value, in actual practice there 
is but one standard. Men will hoard the dearer 
money or transfer it from currency to use in 
jewelry, plate, and instruments, regardless of the 
artificial legal tender provision. All men will 
pay for their goods the lowest possible price; 
will pay in the cheapest standard of value. 

The two standards of value have, therefore, 
failed to regulate the values or prices of each 
other, have failed to bring greater stability to 
the prices of the other commodities which are 
measured in terms of the standards, and finally 
have failed to maintain themselves as standards 
of value and media of exchanges. The experi- 
ence of the world then agrees in the main with 
the theory of a double standard, of which we 
have already spoken. Fact and theory, there- 
fore, both agree that money is most productive, 
is most serviceable to the producer of goods 
and their consumer — to the farmer, the miner, 
the manufacturer, the transportation agent, and 
the merchant — that money is a greater instru- 



1/2 PRINCIPLES OF WEALTH AND WELFARE 

ment of producing wealth when the standard 
of it and of all the other commodities is single, 
not double. Whether this standard should be 
gold or silver is perhaps a debatable question. 
A single standard of value, gold, for instance, 
does not, however, mean a single form of money 
as a medium of exchange. The needs of the 
business world seem to us to call for a single 
standard of value, perhaps the gold standard. 
But these same needs seem to us to call for 
silver, nickel, and copper, as well as gold, as 
media of the exchange of goods. 

QUESTIONS 

(i) A New York merchant makes in a day one thousand 
trades with his customers. What serves as the standard of 
value in all of these trades? 

(2) What is the relation of the gold dollar to all prices 
in the United States? 

(3) Would you have a single gold standard ? 

(4) Would you have a single silver standard ? 

(5) Would you have a double standard — gold and 
silver ? 

(6) Does a stable standard of value add to your wealth 
and welfare? 



CHAPTER XI 
exchange: money a medium of exchange — A 

PRODUCER OF WEALTH 

Importance of Media of Exchange. — We have 
spoken of money as a standard of the values of 
all kinds, qualities, and quantities of commodi- 
ties. We have seen that such a standard is a 
great instrument in the production of wealth. 
The economic realm of producers and con- 
sumers demands money not only as a standard 
of value, but also as a medium of the ex- 
change of all its products. Many of these 
exchanges, at least as we have them to-day, 
cannot with ease and convenience be made in 
ordinary commodities alone. To be sure, ordi- 
nary goods are at times exchanged for ordinary 
goods, but this is not the rule of our present 
economic life. The ordinary commodities are 
now exchanged for money, in some form or 
other, and this money is in turn exchanged for 
ordinary commodities of various kinds. Money 
is the medium of these exchanges, and this 
medium is the instrument or means through 
which much economic force is transmitted. 

173 



174 PRINCIPLES OF WEALTH AND WELFARE 

It is, in fact, a great instrument in the produc- 
tion of wealth. Money as a medium of ex- 
change, as well as a standard of value, may, 
therefore, with good reason be called a producer 
of wealth. 

Properties of Money as a Medium of Exchange. 
— Among the properties required of that com- 
modity which is adopted by a people as its 
standard of value, a high degree of exchange- 
ability is, as we have seen, one of the most im- 
portant. This is an equally important property 
of money as a medium of exchange. The 
money medium must be acceptable to all per- 
sons in the exchange of their goods or services ; 
otherwise the chief function of the medium is 
not performed. A medium of exchange is 
adopted for the very purpose of facilitating the 
exchange of goods and services of mani- 
fold kinds, not only within a small area but 
also throughout the economic realm of a 
people. 

Not only must the medium possess the prop- 
erty of (i) exchangeability, but it must also 
possess that of (2) accuracy. The medium for 
which goods are exchanged should, as a matter 
of course, be as nearly an equivalent of these 
goods as is possible. A man will refuse to 
exchange his commodities for a medium unless 
he feels that he is receiving in return an equiv- 



EXCHANGE: MONEY A MEDIUM OF EXCHANGE 175 

alent value. (3) The property of being easily 
transported from place to place, in small or large 
amounts, is also very necessary. The ex- 
changes of the American people among them- 
selves cover a distance of more than three 
thousand miles, and, if the medium of these 
exchanges cannot with ease be taken from place 
to place throughout this vast area, commerce 
is hindered. The medium should likewise 
possess (4) the property of durability, of being 
able to stand the wear and tear of commerce, 
and a (5) form and such (6) marks that all men 
may easily recognize its value. That it should 
possess these properties needs no special discus- 
sion. But, of all the many necessary properties 
of money as a medium of exchange, none are 
more important than those of (7) its size and its 
elasticity. The commercial transactions of a 
people cover a very wide range of values. The 
American deals in some goods valued at most 
at one cent, in other goods valued at hundreds 
of cents, and in still others valued at hundreds 
of dollars. For all these various transactions, 
there is an absolute need of a medium of cor- 
responding size, ranging from one cent to 
thousands of dollars. In Europe, where com- 
mercial dealings are of much smaller value than 
are our own, there is great need of a medium of 
smaller size than our one-cent piece. It must 



176 PRINCIPLES OF WEALTH AND WELFARE 

for them range as low as one fifth of a cent. 
In all countries the volume of exchange is fluc- 
tuating. At one time it is larger, at another 
time smaller. And the volume of money should 
always correspond with the changes in the de- 
mand for it. 

Composition of the Medium of Exchange. — It 
follows, from the very purposes and properties 
of a medium of exchange, that it should be of 
different composition. In this respect, there is 
a fundamental difference between money as 
a standard of value and money as a medium 
of exchange. The one should be composed 
of only one commodity, while the other should 
be of several commodities. And the media of 
exchange or currency, as these media are called 
in popular speech, may be grouped under two 
heads: coin, or metallic money, and paper 
money. For metallic money the people of the 
United States, and of almost all the other coun- 
tries, now use gold, silver, nickel, and copper, 
combined with certain alloys. As we have 
already seen, gold is our present standard of 
value, and in terms of this standard all of our 
other media of exchange are measured, whether 
they are metallic or paper. 

(a) Coin : Gold^ Silver^ Nickel, and Copper. — 
Of gold coin, we have the twenty, ten, ^v^, 
and two-and-a-half dollar pieces. While our 



EXCHANGE: MONEY A MEDIUM OF EXCHANGE 177 

standard of value Is the gold dollar, gold coin 
of this size is not at present minted. It is too 
small for convenience. Not only has it been 
found that the one-dollar gold piece is too small 
for practical use, but it has also been discovered 
that a gold coin of any size made of pure gold 
is impractical ; it is not sufHciently hard to 
endure the wear and tear of commercial use. 
Gold coins of any denomination are now only 
nine tenths pure gold. Of the total weight 
of the double eagle, eagle, half eagle, or quarter 
eagle, one tenth is copper. The total weight 
of the eagle or ten-dollar gold piece, for in- 
stance, is 258 grains, but of this total weight 
only 232.2 grains are of pure gold. 

We have silver coins known as the one-dollar, 
fifty-cent, twenty-five-cent, and ten-cent pieces. 
Each of these silver coins is composed of nine 
tenths pure silver and one tenth copper. And 
these silver pieces are now all subsidiary to the 
gold standard, and the legal value of these 
coins is fixed above that of their market. 
This provision was made in order to prevent 
the condition of having at times two actual 
standards of value, — gold and silver. Con- 
gress, after the people of the United States 
had long struggled under the fluctuations of two 
legal standards of value, established by law 
a single gold standard. But some further 



178 PRINCIPLES OF WEALTH AND WELFARE 

legislation must be enacted, to make this single 
standard a permanent one. If the legal value 
of silver coin, or its legal ratio of exchange 
with gold coin, were fixed at that of its market, 
silver would in actual practice compete with 
gold as a standard of value, notwithstanding 
the fact that Congress has declared gold to 
be our only standard. And, moreover, if the 
silver coin, having been given such a legal value, 
should increase in its market value, as is often 
the case, it would become dearer than the gold 
coin. In consequence of such a condition 
silver would more or less disappear from use as 
currency, and this would hinder commerce ; for 
silver coins, certainly those of the sizes below 
one dollar, are very necessary in business deal- 
ings. But the provision to the effect that the 
legal value of the silver coins shall be greater 
than their market value prevents the occurrence 
of such an undesirable condition. 

In consequence of this provision, we have an 
abundance of silver coins for all of our com- 
mercial purposes ; and we would most probably 
add to the efficiency of our money by convert- 
ing our silver dollar pieces into the smaller 
sizes. In addition to the small silver coins, we 
have in fairly large quantities five-cent pieces 
of nickel and copper, and one-cent pieces of 
copper, tin, and zinc. While we have a very 



EXCHANGE: MONEY A MEDIUM OF EXCHANGE 179 

large supply of coins ranging from fifty cents 
to one cent, our needs for such denominations 
are enormously great. Millions are the daily 
transactions in which only small values are 
involved, and we have no small currency of 
convenience^ other than our small silver, nickel, 
and copper pieces. 

{b) Paper Money. — As we have said, that 
commodity which any people adopts as its 
standard of value should in itself possess util- 
ity ; the nature and function of a standard re- 
quire this much. That all forms of money as 
media of exchange should in themselves possess 
value is, however, by no means necessary. They 
must, to be sure, represent things which of 
themselves possess value. Metallic money pos- 
sesses utility in itself, as well as the property 
of serving as a medium of exchange, though 
this form of money at times possesses a legal 
value which is much higher than that of the 
market. Paper money, on the other hand, has 
absolutely no intrinsic value. It merely repre- 
sents the obligation of a public or private body, 
and the reason for its acceptance by the busi- 
ness or commercial world is based entirely upon 
the confidence which the business world places 
in these bodies. 

1 The bank check may at times be used as small currency, but 
checks for very small amounts are inconvenient. 



l80 PRINCIPLES OF WEALTH AND WELFARE 

And this form of currency performs one dis- 
tinct service which coin cannot render. It is 
more easily transported from place to place and 
from person to person than is metallic money. 
It, therefore, requires less and less police force 
to protect its transportation. When based upon 
gold as a standard of value, and when secured 
by wealth in some readily tangible form, paper 
media of exchange are, in addition to being 
cheap in the cost of issue, very convenient and 
safe. Unfortunately, however, much of the 
paper money is not based upon gold or upon 
some other form of wealth which is substantially 
as valuable as gold; in fact much of it is at 
times inconvertible. If all paper currency were 
readily convertible into the standard of value 
or its equivalent, its use would not only be safe 
but also most convenient and advantageous. 

Convertible Paper Money or Media of Exchange. 
— The paper medium called convertible is pay- 
able on demand, and in the standard of value 
itself, whenever the holder of it calls for such a 
form of payment. It, therefore, passes at par 
value ; it is usually accepted by all without any 
objection whatever. The state also assigns to 
certain forms of it legal tender powers, and 
thereby to an extent compels its circulation. 

Of this kind of paper currency, (i) the silver 
certificate is an important element. These cer- 



EXCHANGE: MONEY A MEDIUM OF EXCHANGE l8l 

tificates are issued by the treasury department in 
Washington, and are completely secured by silver 
dollars, which are held in reserve for the specific 
purpose of redeeming them. They are conse- 
quently safe and sound, are in extensive and 
common use, and serve the business world 
much more efficiently than do the silver dol- 
lars.^ The denominations of this medium range 
from $1 to $1000. The federal treasury depart- 
ment has also issued (2) £-0/^ certificates. And 
these certificates are completely secured by gold 
coin, which is held in the vaults of the depart- 
ment for the specific purpose of redeeming 
them. Like the silver certificates, they are 
safe and serviceable to the commercial world, 
though they are in large denominations. They 
range from $20 to ^10,000. Another form of 
convertible paper money is (3) the United States 
treasury note. These notes are issued by the 
federal treasury department, usually for a short 
period. Their redemption is guaranteed by this 
department, and for the most part they are to be 
redeemed within a short time, though no spe- 
cific form or amount of coin is kept in reserve 
for their redemption. In this respect they are 
unlike the silver and gold certificates, though, 
like these media, they usually pass at par. Their 
circulation and acceptance depend, however, 

^ Silver dollar pieces are too heavy for convenience. 



1 82 PRINCIPLES OF WEALTH AND WELFARE 

upon the confidence which is placed in the 
government's general financial ability, while 
the acceptance of the silver and gold certificates 
depends upon something much more tangible 
— upon silver and gold coins which are held 
in reserve for this very purpose. These treas- 
ury notes are issued for the purpose of tempo- 
rarily expanding the currency, while silver and 
gold certificates never expand the media of 
exchange ; they are issued only in the place of 
coin money. 

Our federal government is not the only cor- 
poration which issues paper currency of the 
convertible type. Some of our private corpora- 
tions issue this form of media of exchange. 
Our national banks issue such currency, and 
this is called (4) natio7ial bank notes. These 
bank notes are redeemable on demand, and are 
also fully secured by specific funds (United 
States bonds) deposited in the federal treasury 
department by the banks which issue them. In 
addition to the national bank notes, we have 
other forms of convertible paper currency issued 
by the banks, whether national, state, or private. 
We have (5) checks^ drafts^ mid circular letters of 
credit} and these forms enormously swell the 
volume of our currency. They are not, however, 

1 Checks, drafts, and circular letters of credit are the forms of 
the orders which individuals and banks make upon other individ- 
uals and banks for the payment of certain sums. 



EXCHANGE: MONEY A MEDIUM OF EXCHANGE 183 

based upon specific funds which are held in re- 
serve, either by the government or by the banks. 
Their security depends entirely upon the gen- 
eral funds of these private corporations. They 
are, however, redeemable on demand, whenever 
presented, and are consequently for the most 
part safe. 

One property belongs to these forms of cur- 
rency — checks, drafts, and letters of credit — 
which the other forms of convertible paper do 
not possess, if we except the treasury notes. 
These media of exchange are very elastic ; they 
can increase or decrease in proportion to the 
increase or decrease in the demand for them. 
From the very nature of money, from the fact 
that it serves as a medium in the exchange of 
goods which are constantly changing in their 
volume and quality, it follows that money should 
likewise possess the property or quality of being 
elastic or able to increase or decrease with the 
demand for it. 

The metallic money of which we have spoken 
changes in volume, but as a rule its changes 
are not in proportion to or at the time of the 
changes in the demand for it. It requires time 
in which to mine and mint it. This lack of 
elasticity is also characteristic of silver and gold 
certificates ; they are merely representatives of 
coin of exactly the same amount. In fact, 



1 84 PRINCIPLES OF WEALTH AND WELFARE 

most of our government paper and all of our 
coin and bank notes are inelastic. They do not 
meet the changes in the demand for money, 
which are caused by changes in the seasons, 
crops, etc. It requires too much time in which 
to increase or decrease these forms of money. 

This lack of elasticity, of ready expansion 
and contraction, in our currency has called 
forth much agitation for a change, especially in 
our bank-note system. Our bank notes are at 
present very safe and sound, though they do not 
possess the property of elasticity. Whether or 
not our national banks should be allowed by the 
federal government to issue a certain amount 
of bank notes secured by one third of their 
amount in coin and two thirds of it in good and 
easily marketable securities, as Germany per- 
mits, we are not quite prepared to say. Such 
a plan would unquestionably give us a more 
elastic, expanding and contracting, currency. 
Would it also cause our bank notes to remain 
perfectly safe ? We are most strongly inclined 
to think so, provided the federal government is 
very exacting in its supervision. Elasticity is 
a most desirable property in a medium of 
exchange, and the business world needs it, but 
safety is a more desirable one. 

Inconvertible Paper Money or Media of Ex- 
change. — The desire to expand the currency 



EXCHANGE: MONEY A MEDIUM OF EXCHANGE 185 

of a people has been almost universal, and very 
many have been the schemes of such expansion. 
That economic life at times demands more 
media of exchange than it does at other times, 
needs no detailed discussion. This situation 
arises from the very nature of exchanges and 
from the very function of a medium of these 
exchanges. Economic life would be at a stand- 
still were its calls for such media always the same. 
The governments have felt these calls for 
greater quantities of money, as well as those 
for smaller quantities. They have at times, es- 
pecially in their own financial emergencies, an- 
swered these calls by issuing the form of paper 
currency called the treasury notes. And of this 
form of money we have already spoken. They 
have also in times of their own emergencies 
issued paper currency to which they assign 
a large legal tender power and which they 
promise to redeem at some very indefinite time. 
This form of government paper is called incon- 
vertible, because the provision for its redemp- 
tion is indefinite and uncertain, and the time of 
redemption at the wish of the government itself, 
not at the demand of the holder of such paper. 
And this medium is usually issued at a time 
when the general financial ability of the gov- 
ernment is by no means great, and conse- 
quently the confidence which is placed in the 



1 86 PRINCIPLES OF WEALTH AND WELFARE 

government is not sufficient to cause its paper 
to exchange at par value. Such paper money, 
therefore, depreciates, at times very greatly, 
brings disturbance into prices, tends to estab- 
lish a secondary standard of value and prices, 
and finally drives the better and dearer money 
out of use. 

These inconvertible forms of paper cur- 
rency, which have at times been called green- 
backs, have been resorted to at many different 
times and by many peoples. The experience 
of the world has, however, shown that such 
media of exchange, instead of being of advan- 
tage, instead of being a productive power, have 
brought disturbance, depreciation, demoraliza- 
tion, and loss. And the American people at 
times in their history, notably from 1862 to 
1863, have dealt with such an instrument, which 
they supposed was possessed of productive 
power, but which was in reality an instrument 
of destruction. 

QUESTIONS 

(i) Would you accept one form of media of exchange 
as readily as you would another? 

(2) Why do the bank notes, which are issued by the first 
national bank of Richmond, Virginia, circulate freely through- 
out the United States? 

(3) Would you prefer a $20 gold coin to a ;^20 gold 
certificate ? 



EXCHANGE: MONEY A MEDIUM OF EXCHANGE 187 

(4) Would you prefer a ;^20 gold coin to a $20 green- 
back (U.S. note) ? 

(5) Double your money. Have you doubled your 
wealth ? 

(6) Double your money. Have you doubled your 
welfare ? 



CHAPTER XII 

THE STATE — A PRODUCER OF WEALTH 

The State as a Consumer and a Producer. — 

Under the section devoted to the consump- 
tion of wealth, we have seen that the state, as 
well as the individuals, has many and varied 
wants. The state is, therefore, a consumer of 
wealth. And, according to our ideal of the rela- 
tions of consumption and production, the state 
has no right to exist unless it is also a producer 
of wealth, and of as much wealth as it con- 
sumes. Is the state really a producer ? As we 
have already seen, economic man is surrounded 
by nature and her forces and also by social 
environments. He lives and moves, consumes 
and produces wealth, amid these surroundings. 
He puts forth his activity and efforts in a col- 
lective body of individuals which we call the 
state. Does this state aid the individual in 
producing wealth? Does it in itself produce 
wealth or the conditions of wealth and welfare ? 
Functions of the State. — Answers to these 
questions can best be discovered in the analysis 

i88 



THE STATE — A PRODUCER OF WEALTH 189 

of the functions and purposes of the state. But 
these functions vary more or less with the dif- 
ferent stages of civilization and with the pecul- 
iar political philosophy of a people. To expect 
to find in all of the states exactly the same pur- 
poses and functions, is to assume that all the 
peoples who make up these states have wants 
and tastes, as well as thoughts, of exactly the 
same nature and quality. Such an assumption 
is, to be sure, merely ideal, if not indeed entirely 
fanciful and visionary. Every state has a 
personality of its own, and this is made up of 
the personalities of all of its citizens. The 
American state is in some of its aspects dif- 
ferent from the German state, though there is 
much in common between them. The func- 
tions of the American state are, therefore, not 
exactly the same as those of the German state. 
While there are distinct differences in the 
functions of different states, it seems to us 
that these differences are more apparent than 
real, more in form than in fundamental princi- 
ples. In our present consideration we shall, 
therefore, deal with the more fundamental and 
vital aspects ; we shall deal with the functions 
which essentially belong to every modern 
state — the great functions of protection and 
development. 

{a) Protective Function, — This vitally impor- 



igo PRINCIPLES OF WEALTH AND WELFARE 

tant function of government is of a twofold 
nature. The state ^ protects the individual in all 
the manifold aspects of his life and effort, and 
also protects the collective body or public from 
the individual's numerous encroachments upon 
its rights and privileges. The collective body 
of citizens and the individual also are protected 
against encroachment, invasion, or destruction, 
from without; are protected from foreign ene- 
mies. They are also protected against the 
damages which arise from insurrection and civil 
war, from within. The state must maintain {i)an 
efficient navy and army for these very purposes. 
And these instruments of government not only 
aid in protecting the individual and the public 
from encroachments upon their rights and privi- 
leges, but also help in maintaining a general 
standard of peace and order, both at home and 
abroad, for the benefit of the individual's eco- 
nomic life. 

In addition to these military departments, the 
state must maintain (2) a judicial department. 
By means of its courts the government renders 
invaluable aid to the production of wealth and 
welfare. It protects the inviolable liberty of 
the individual to work ; saves his property from 
damages, by trespass, theft, and robbery; and 

1 We here use the term ^' state " in a general sense ; it includes 
all the groups — nation, state, county, municipality. 



THE STATE — A PRODUCER OF WEALTH 191 

explains and enforces the contracts which he 
makes with other individuals. By means of 
its (3) legislative and executive departments the 
state also provides against the diseases of the 
social body, and thereby it adds greatly to 
the productive power of this body, as well as 
to that of its individual members. It places 
under key and guard the mean and the vicious. 
It provides places for the pauper and the seri- 
ously deformed in body or mind. It excludes 
or expels the foreigner who would bring degrad- 
ing or dangerous ideas and practices. And at 
times the state takes the life of one individual 
for the sake of the welfare of the other individ- 
uals; it puts out of the world those who are 
dangerous to the life and property of the indi- 
vidual. All of this work on the part of the 
state, while it does not directly produce wealth, 
adds enormously to the productive power of the 
individual and the community. It creates the 
vital conditions for both the production and 
the enjoyment of wealth. 

(b) Developmental Fu7iction. — This function 
which we have called the protective, though it 
is the first to be worked out by a people, is by 
no means the only great governmental func- 
tion. A state should not only furnish protec- 
tion, but it should also take a direct part in 
developing conditions under which wealth and 



192 PRINCIPLES OF WEALTH AND WELFARE 

welfare may be multiplied. In performing the 
protective function the state aids only indirectly 
in producing wealth and welfare. It should 
also aid directly. The government should main- 
tain (i) an efficient and uniform system of 
weights and measures, according to which all 
goods are weighed and measured for the mar- 
ket, (2) a stable and efficient system, of money, as 
a standard of value and a medium of exchange, 
and (3) an efficient postal system, by which news 
and intelligence are transmitted from place to 
place throughout its domains. The state 
should render all these services, and in so 
doing it aids directly the production of wealth 
and welfare. 

And when the state establishes and promotes 
(4) a standard of education, it is creating con- 
ditions which are possessed of wonderfully 
great productive power. It not only causes 
the individual to become a more efhcient pro- 
ducer of wealth, as well as a better citizen, 
but it also adds to the efficiency or productive 
power of all the other agents of production. 
The state, in collecting, formulating, and pub- 
lishing (5) the statistics of business life, is pro- 
ducing the conditions of intelligence under 
which the individual producer may work to 
greater advantage. The state in granting (6) 
patents and copyrights, in granting monopoly 



THE STATE — A PRODUCER OF WEALTH 193 

privileges for a time to that individual whose 
brain and energy have discovered some new 
instrument or thought, which is of benefit to the 
world, is a producer of the conditions of wealth. 
When the state (7) digs canals^ thereby creatmg 
great and advantageous waterways^ when it 
dredges harbors^ builds lighthotises, and maiii- 
tains life-saving stations^ when it aids hi build- 
ing a great railway through a new and unsettled 
territory, when the state does all of these things 
for the benefit of the individual and the public, 
it is producing wealth and welfare upon an 
enormous scale. 

That the state, when it performs all of 
these developmental functions, is a producer^ of 
wealth few people deny. Upon this point 
there is substantial agreement. But when 
the state subsidizes steamship companies, when 
it protects certain producers by means of 
tariffs, and when it undertakes to own and 
operate certain great industries, like the rail- 
ways, the state is entering into highly debatable 
fields. Whether the state when it enters these 
fields is really a producer of wealth and welfare, 
upon this question there is a vast difference of 
opinion. 

1 We mean here by the term "producer of wealth," that the 
state in performing these functions creates more utilities than it 
consumes in performing them. 



194 PRINCIPLES OF WEALTH AND WELFARE 

Developmental Function : (8) a Protective Tariff.^ 
— A tariff duty as a tax, and to an extent a 
means of protection to industries, is well-nigh 
of universal use. England alone of all the 
great peoples now works largely upon the 
principle of free exchange of goods between 
the nations or upon the principle of a tariff for 
revenue exclusively. All the other important 
governments have a higher or lower protective 
tariff wall. They collect customs duties upon 
the goods which are imported into their borders. 
They collect tariff taxes both for the purpose 
of securing revenue for the state and also pro- 
tection to the makers of certain products against 
foreign competition. 

As we have seen, under the head of com- 
merce, the ideal for the exchange of goods 
between people of the same nation is that of 
the most perfect freedom. And we believe 
that such freedom promotes the amount and 
the diversity of skill, division of labor, and spe- 
cialization of trade; we believe that such freedom 
of exchange is indeed in itself an instrument 
which produces wealth. 

Why should not the same principle apply in 

1 A tariff is a tax upon the goods of one nation when trans- 
ported into another nation. The United States government 
places taxes upon certain goods that are brought into its ports 
from other countries, and these taxes we call customs duties or 
tariffs. 



THE STATE — A PRODUCER OF WEALTH 195 

the case of the exchange of goods between 
different nations ? We have already seen that 
the state has its manifold wants, and that 
these must be satiated by means of wealth 
in the shape of public revenue. We believe 
that the experience of governments has for the 
most part demonstrated the utility and perhaps 
the fairness of securing a considerable portion 
of this revenue from taxes placed upon imported 
goods.^ The question which we shall now dis- 
cuss is, therefore, not that of complete freedom 
of trade among the nations. Our problem is 
not free trade, but tariff. Shall our tariff be 
used for revenue exclusively ? Shall it be used 
for revenue primarily and for protection to 
industries incidentally ? 

Tariffs exclusively for revenue can be placed 
only upon those few imported goods which are 
not produced in the country that levies the tax. 
Such tariffs, while they bring revenue to the 
state, afford no protection whatever to its indus- 
tries, for there is no home production of these 
goods. But exceedingly few are the products 
that are imported into a vast and diversified 
country like our own, which are not produced 
at home in some quantity; and for us to secure 

^ But not a few students believe, that it would be of greater 
advantage and fairness for a nation to have perfect freedom in 
her foreign commerce and to collect her public revenue from 
other sources than tariffs. 



196 PRINCIPLES OF WEALTH AND WELFARE 

a large revenue from tariffs upon these few 
products is practically impossible. For our 
federal government to secure maximum revenue 
from its tariffs, it must, it seems to us, levy a rate 
upon a very considerable number of imported 
goods which are also produced at home. Such 
tariffs would be for revenue primarily, not ex- 
clusively, and also for protection to certain home 
producers. The American producers of that 
kind of goods, which are imported and upon 
which the tariffs are laid, are certainly to the 
extent of these taxes protected against their 
foreign competitors. But the American con- 
sumer of the imported goods pays a part, if not 
all, of the taxes, at least in the first Instance. 
Let us say, by way of illustration, that the 
English manufacturer can sell cotton cloth de- 
livered in New York City at 20 cents a yard. 
If our federal government collects 5 cents per 
yard in tariff duties, the American consumer 
will have to pay at least 25 cents per yard, un- 
less the American producers of this very grade 
of cotton cloth by competing with each other 
for the American market can and will supply 
it at a smaller price. This tariff most certainly 
eliminates some of the competition under which 
the American producers work, and gives them 
a greater control of the American market. If 
the tax is very high, it sweeps away all com- 



THE STATE — A PRODUCER OF WEALTH 197 

petition from abroad, for no goods whatever 
will be imported when the tariff placed upon 
them is very great. One American producer 
now competes only with the other American 
manufacturers of the same goods. The tariff, 
though laid primarily for revenue purposes, 
therefore, protects the American producer and 
apparently at the cost of the American con- 
sumer. 

But is the burden of the tariff entirely borne 
by the consumer, as many people think ? Is 
the tax entirely borne by the consumer? To 
say that it is borne by him alone, is to assume 
that the consumer has no choice whatever in 
the cotton cloth or other goods which he con- 
sumes, that he always buys the same quantity 
regardless of their price, and that he is a very 
slave to the producer of these goods. That 
such an assumption is incorrect we have already 
proved, under the head of monopoly production. 

While we cannot think that the consumer 
bears all of the burden of the tariff, — and all 
taxes of whatever kind are truly a burden upon a 
people, — we readily grant that the consumer 
bears a part of this burden. We contend, how- 
ever, that the producer in a progressive com- 
munity, where all producers are eagerly striving 
for maximum returns from their undertakings, 
bears part of this burden. Maximum returns 



198 PRINCIPLES OF WEALTH AND WELFARE 

come, as we know, from extensive dealings as 
well as from high price dealings. And the 
producer, whether he will it or not, must give to 
the consumer of his goods some of the benefits 
that come to him from the protection which 
the tariffs afford him. His own selfish aims — 
maximum net returns — drive him to sell his 
goods at a fair price, at least at that price 
which will bring him greatest profits. He is, 
of course, well aware that a smaller quantity of 
his goods is sold when the price is higher. 

Is such a tariff, a tax for revenue primarily 
and for protection incidentally, a producer of 
wealth } Does such a protective policy add to 
the productive power of all the people of a nation, 
to the consumers, as well as to the producers ? 
This tariff is most certainly a burden upon many 
of the people, if not indeed all of them. But is 
not this burden more than overbalanced by the 
benefits, specific and general, which accrue 
from such a tariff policy ? To these questions, 
it seems to us, no absolutely exact and un- 
changing answer can ever be made. We well 
know that the burden of obtaining revenue, 
with which to meet the many necessary wants 
of the state, must of necessity be borne by the 
individuals. And that the tariff may at times 
be a means of producing wealth or the condi- 
tions of wealth and welfare for a nation, and that 



THE STATE — A PRODUCER OF WEALTH 199 

it may be at these times the least burdensome 
method of securing this pubhc revenue, we are 
most strongly inclined to believe. This opin- 
ion is, however, expressed of a tariff which is 
levied primarily for revenue and incidentally 
for protection. A tariff tax laid primarily for 
special protection to a few producers, and not 
essentially for public revenue, cannot, we think, 
be defended by sound and unbiased reason. 

We have just said that a tariff, levied pri- 
marily for public revenue and incidentally for 
protection to the producers of certain goods, 
may at times be for a nation a producer of 
wealth or of the conditions of wealth and welfare. 
In that country, in which capital and labor 
exist in insufficient quantities, in which interest 
and wages are in consequence much higher 
than they are in more thickly settled countries, 
a tariff which protects in a fairly uniform man- 
ner aids in creating new fields of production. 
It increases the diversity and energy of eco- 
nomic life. It causes more of manufacture, 
transportation, and domestic commerce, as well 
as of agriculture, and adds to the total produc- 
tive power of a people. 

That the people of the United States as 
a whole have received benefits from such a 
tariff, and that such a policy has at times 
been for us an instrument of production, we 



200 PRINCIPLES OF WEALTH AND WELFARE 

fully believe. Early in our existence as a 
nation we were almost exclusively an agricul- 
tural people. Most of our activity and energy, 
and most of our capital and business man- 
agement, were employed upon the soil, were 
spent in producing the elementary utilities — 
the raw materials. We were, moreover, pos- 
sessed of but a few million people and a very 
small quantity of capital, though we had nature 
and her forces around us in great abundance. 
To convert our raw materials or elementary utili- 
ties into many and varied higher forms was then 
very costly. We had to pay high wages and 
interest. Our business management had not yet 
adjusted and correlated all the agents of produc- 
tion in such a manner as was required to manu- 
facture the higher forms of goods at a low 
cost. The American manufacturer could not 
then compete with the European producer un- 
der the conditions of free competition. The 
American produced his goods at a high cost 
while the European manufactured his goods at 
a low cost, and the charges of transportation 
across the Atlantic in a sail ship were not very 
great. For the time being, therefore, the Amer- 
ican producer of the higher forms of goods 
must either put forth much greater activity and 
effort than did the European, or completely 
fail. Our federal government threw around the 



THE STATE — A PRODUCER OF WEALTH 201 

manufacturer a wall of protection, and he was 
given a field of work which was to an extent 
his own. By virtue of the great natural re- 
sources which surround him, by virtue of his 
own great energy and skill, and finally by 
the aid of a tariff protection, the manufacturer 
has become a great and permanent element and 
force in our life. And his coming has added 
energy and vitality to all the other aspects of 
our economic life. Manufacture is so produc- 
tive of the conditions of wealth and welfare that 
it develops all the other groups of production. 

Those were the days of our economic youth, 
and a tariff was then an agent for the increas- 
ing of our total productive power. To-day we 
are a great giant in the industrial or economic 
world. That our tariff policy, though it has at 
times been largely for other than public inter- 
ests, has aided us in becoming so enormously 
great within such a marvelously short space of 
time, we fully believe. We contend, however, 
that its assistance has been comparatively slight, 
and that the fundamental and vital elements of 
our wonderful economic progress have been 
American labor, capital, natural resources, and 
business sense. 

Developmental Function: (9) Governmental 
Ownership and Operation of Certain Industries. — 
The tariff question, especially as to whether a 



202 PRINCIPLES OF WEALTH AND WELFARE 

tariff system Is a means of adding to the pro- 
ductive power of a people, is not the only- 
question of much debate and difference of 
opinion. How far the state shall own and 
operate industries is likewise a vitally important 
problem. And the solution of this problem 
by different nations has been very different. 
Among some peoples the state exists primarily 
and fundamentally for its protective functions. 
It supplies the individual with the conditions 
of peace and order, with a uniform system of 
weights and measures, with a more or less 
stable standard of value, with the media of ex- 
change, and with fairly efficient postal and 
educational systems. For other peoples the gov- 
ernment performs many developmental func- 
tions. It provides the individual with all of 
these and many other vital conditions. It also 
participates in some of the most fundamental 
of the industries, and at times operates these 
industries for the sake of adding to the pro- 
ductive power of all of its people and also for 
the sake of revenue to itself. 

Telegraphs and Telephones. — Shall the state 
own and operate the telegraph and telephone 
industries? Both of these lines of industry 
have become almost fundamentally and vitally 
necessary to the life of a people. Is their oper- 
ation when under private corporations more or 



THE STATE — A PRODUCER OF WEALTH 203 

less productive of wealth and welfare than it 
is when under the management of the state ? 
This vital question has been answered in both 
ways. Some nations have come to the decision 
that, for themselves at least, private ownership 
and operation of these industries are best and 
most efficient. Others have come to the op- 
posite conclusion, and public ownership has 
among them been put into operation. The 
people of our own country, for the most part, 
still believe in private management. England 
has put public management into fairly success- 
ful operation. 

Both of these industries belong to the most 
important field of the transmission of news and 
intelligence, and from many points of view they 
are to be considered in exactly the same light 
as is the postal system. In all of these indus- 
tries the aim is identically the same — the trans- 
mission of intelligence. The difference between 
them is in the instrument of transmission, 
whether by wire or by carrier. The postal sys- 
tems of the world are at present governmental. 
The fact that this system has been so vitally 
necessary for the government's own use — for 
military, legislative, judicial, and executive pur- 
poses — is perhaps the greatest reason why the 
postal industry has been undertaken by the state. 
But the telegraph and telephone are now fast 



204 PRINCIPLES OF WEALTH AND WELFARE 

becoming as necessary to the state for its 
own use as is the postal system, and possibly 
these too will soon become governmental 
industries throughout the advanced nations 
of the world. 

Railways. — Shall not the state own and 
operate the railways also ? To this question va- 
rious answers have been given. Some European 
countries have declared in favor of the affirma- 
tive, while others believe in the private operation 
of this great and fundamentally important in- 
dustry. That this great industry is of most 
vital importance to all the other industries 
of whatever kind, needs no argument. It 
belongs to the transportation services of a 
people. It belongs to the transportation of 
its intelligence, persons, and products. Such 
services, as we have seen, are of fundamental 
necessity to the production of wealth and wel- 
fare. Shall such an industry, which bears the 
most vital relation to all the other industries — 
to the farmer, miner, manufacturer, and commer- 
cial agent — be owned and operated by the 
state or by private corporations ? This is the 
vital question. 

In order to answer this great question it is 
necessary to find out which operation is the 
more efficient. If public operation is the more 
economical and efficient, then such operation 



THE STATE — A PRODUCER OF WEALTH 205 

is the ideal, and the sooner it can be realized 
the better it will be for the people and the 
government alike. If private management is 
the more economical and efficient, then the state 
should not by any means undertake to own and 
operate these industries. That there are many 
abuses under private management is very well 
known, but that state management will relieve 
these abuses is a highly debatable proposition. 
Governmental management of the railways could 
unquestionably bring more uniformity into the 
system and could do away with rebates and dis- 
criminating charges for freight, but whether it 
would accomplish these desirable ends is ex- 
ceedingly doubtful. So far in our governmental 
activity corruption has played more or less a 
part ; and corruption means a lack of uniformity, 
means abuses. It is claimed that governmental 
management would also bring cheaper rates to 
the consumer of railway services. It is well 
known that railway management under private 
corporations oftentimes brings great returns 
and profits. That the railway managers of our 
own country could at times afford to sell their 
services at cheaper rates, we do not doubt. But 
it is equally well known that government man- 
agement is high-price management — that it is, 
as a rule, less economical and less efficient than 
private management. We, therefore, seriously 



206 PRINCIPLES OF WEALTH AND WELFARE 

doubt that state management would in actual 
fact bring cheaper rates to the consumer. 

To the question, shall the state own and 
operate the postal system, we are inclined to 
answer in the affirmative. While the operation 
of this industry by the state is possibly at a 
higher cost than would be its operation under 
private corporations, its service is perhaps more 
uniform and its charges are perhaps lower, 
since the state attempts to make no profits 
whatever. Shall the state own and manage 
the telegraph and telephone industries? We 
are inclined to answer in the negative, and for 
reasons of economy and efficiency. And upon 
the proposition of state ownership and operation 
of the railways we are most strongly inclined to 
the negative. Governmental operation of this 
industry might relieve some of the abuses which 
exist under private operation, but it would, cer- 
tainly in the United States at least, bring many 
abuses of its own. In theory it might reduce 
the charges, but the wonderful extension and 
complexity of the industry are too great and 
the chances of corruption too large for state 
management to reduce at all materially the 
present cost of these services. The state might 
make revenue for itself out of the profits which 
now go to the private managers, and thereby 
save the public from some of the burdens of 



THE STATE — A PRODUCER OF WEALTH 20/ 

taxation, but here too stands the fact that gov- 
ernment management is higher priced than is 
private management. If the state produces rail- 
way services at a higher cost than does the 
private corporation, it will be compelled, in 
order to obtain revenue out of its profits, to 
sell these services at a higher price. 

Developmental Function: Proper Function. — 
In all these discussions of the developmental 
function, we have assumed that it is the proper 
function of the state to undertake anything 
which really creates and promotes the condi- 
tions of wealth and welfare for its people as a 
whole. We believe that this is a correct 
assumption. The questions of tariff and gov- 
ernmental ownership are, therefore, questions of 
expediency, not of function. Does a protective 
tariff bring to society returns which are greater 
than its cost } If so, it is a productive force for 
the people as a whole. Does governmental 
ownership bring returns which are greater than 
its cost ? If so, it also is a productive force for 
the people as a whole. If a protective tariff is 
really a productive force for a people, it is 
certainly the proper function of the state to put 
it into operation. If the governmental opera- 
tion of the railways is a productive force for 
society as a whole, then it is certainly the duty 
of the state to put this also into operation. 



208 PRINCIPLES OF WEALTH AND WELFARE 



QUESTIONS 

(i) Can a man operate his business without the existence 
of the state? 

(2) Is the government a producer of wealth and welfare 
when it protects the individual in his business? 

(3) Is the government a producer of wealth and welfare 
when it educates the children? 

(4) Is the government a producer of wealth and welfare 
when it maintains uniform systems of weights, measures, 
money, postal service, patents, and copyrights? 

(5) Is the government a producer of wealth and welfare 
when it maintains lighthouses, life-saving stations, and when 
it digs canals and harbors? 

(6) Is the state a producer of wealth and welfare when 
it owns and operates the telephones, telegraphs, and rail- 
ways? 

(7) Is the state a producer of wealth and welfare when it 
places a protective tariff upon certain imported goods? 



SECTION III 

CONSUMPTION AND PRODUCTION; MARKET 
PRICE— WELFARE 

CHAPTER I 

DEMAND AND SUPPLY ; MARKET VALUE AND PRICE 

Consumer and Producer. — We have now con- 
sidered the forces and principles of the con- 
sumption of wealth. We have seen how these 
forces and principles create and regulate the 
consumer's demand for wealth in its various 
forms. We have also considered the forces 
and principles of the production of wealth. We 
have seen how these forces and principles create 
and regulate the producer's supply of goods in 
their various forms. We have discussed the 
consumer's price. We have also, in our discus- 
sion of the production of the supply of goods, 
assumed on the part of our readers a certain 
knowledge of the producer's price and the mar- 
ket price. It is now necessary for us to make 
an analysis of the forces and principles which 
are at work when consumer and producer, when 
p 209 



210 PRINCIPLES OF WEALTH AND WELFARE 

demand price and supply price, come together 
face to face in the market. 

Goods are, as we know, in the main pro- 
duced in answer to a demand for them. The 
producer's ideal is to produce just as many 
goods and of just the form which the consumer 
calls for. In a very extensive and complex eco- 
nomic society, as ours is, it is practically im- 
possible for the producer to find out exactly 
what the consumer demands ; in actual fact he 
produces too great or too small a quantity of his 
products. The producer for the most part at- 
tempts not only to produce the utilities which 
the consumer wants and demands, but also to 
sell these utilities to the consumer for the high- 
est possible price. By producing the maximum 
amount which will sell for a good price he 
obtains the maximum total or gross income. 
But in order to secure the maximum net in- 
come — income above all operating expenses 
— the producer must also attempt to work his 
agents, forces, and instruments of production to 
the point of greatest possible advantage. By 
doing this he produces his goods at the lowest 
cost. The producer, therefore, has always before 
him two sets of difficult problems to solve. He 
must continually deal with the consumer, in or- 
der to sell him that quantity of goods and at 
that price which will bring to him the greatest 



DEMAND AND SUPPLY 211 

total returns. He must also work with the 
agents and forces of production, in order to 
produce his goods at the minimum cost. This 
second set of problems we have already consid- 
ered. We must now consider more in detail 
the first set, — the demand of the consumer in 
relation to the supply of the producer. 

Demand and Supply; Market and Market Price. 
— The consumer's wants, as we have already 
seen, are manifold in quantity and intensity. 
The producer's supplies are equally varied. The 
consumer is also a producer, and the producer 
is likewise a consumer. The coming together 
of the producer and the consumer with their 
supply and demand is, therefore, a very compli- 
cated process. The place where demand and 
supply come together, where all the forces of 
consumption meet face to face with those of 
production, we call a market. The point at 
which these two sets of forces balance for the 
time is the market price, and this price is ex- 
pressed in our common standard of value, a 
gold dollar. Market price is, therefore, the equi- 
librium of demand price and supply price. It 
is an equilibrium of the price which the con- 
sumer is willing to pay and the price which the 
producer can afford to accept. 

These forces which are ever at work in the 
market place are exceedingly varied. They 



212 PRINCIPLES OF WEALTH AND WELFARE 

are at times exceedingly great and strong, 
while at other times they are tiny and delicate. 
The market price of any commodity remains 
the same for only a very short time ; it is ever 
swinging back and forth. Let us illustrate this 
point. The price of raw cotton is this morning 
at lo o'clock lo cents a pound, at 10.30 about 
9.50 cents, at 12 o'clock 10.20 cents, etc. This 
price, at periods, changes as many as a hundred 
times within a few hours, while for other periods 
it remains very much the same for many days. 
The price of cotton, as well as that of the 
countless other commodities, fluctuates with 
the strength of the demand for it and the sup- 
ply of it. The great and changing forces of 
demand and supply create not only the mar- 
ket but also the market price with all of its 
fluctuations. 

Market Price and Speculation; Demand and 
Supply. — Some of these fluctuations in the 
prices of cotton, as well as of all other goods, 
are, to be sure, the result of artificial dealing 
with the mighty forces of the market. Manipu- 
lators and gamblers in prices have some influ- 
ence upon them. As we have already said, the 
producer cannot possibly calculate exactly the 
demands of the consumer, or even the quantity 
or quality of his own supply. Likewise the con- 
sumer cannot calculate exactly the supply of 



DEMAND AND SUPPLY 21 3 

the producer, or the form and intensity of his 
own demands. There is, therefore, always more 
or less of an element of uncertainty in each 
market, wherever it may be, and of whatever 
commodity it may be. In this element of uncer- 
tainty some men, popularly called gamblers and 
manipulators "of futures, " are at work. They at 
times make the consumer and the producer 
think that the supply of certain products is 
smaller than it really is, and this tends to cause 
an increase in the price of the products. At 
other times they make the consumer and the 
producer think that the supply is larger than it 
really is, and this tends to cause a decrease in 
the price of the goods. The manipulator of 
the market may, therefore, to an extent, influ- 
ence the market price of goods. This influ- 
ence is, however, only secondary. The real 
demand and supply, rather than the demand 
and supply fixed by the manipulator, funda- 
mentally determine the price of every goods. 
The speculator, on the other hand, does not 
attempt to create false impressions as to the 
demand or the supply of a goods. He merely 
buys and sells the very element of uncertainty. 
And all buyers and sellers of goods are in a 
sense buying and selling at a price which is 
more or less uncertain. A merchant buys his 
winter stock early in the summer, — that is, he 



214 PRINCIPLES OF WEALTH AND WELFARE 

agrees upon the price at least six months ahead 
of the delivery of the goods, — and the manufac- 
turer sells this stock far ahead of the time of 
the production and delivery of the goods. 

Size of the Market : Local, National, or Interna- 
tional. — This equilibrium between consumer 
and producer, between demand and supply, 
may be merely local, or it may be national or 
international. A market was once entirely 
local. The producers and consumers of the 
same locality came together and sold and 
bought their goods ; and the people of one sec- 
tion had no exchanges whatever with those of 
another section. Before the time of the fast 
express train and the refrigerator car the 
peaches and strawberries of North Carolina sold 
exclusively on a local market, and their price 
was fixed by the forces of this market. Peaches 
then sold in Greensboro, North Carolina, for the 
small sum of 25 cents a bushel. The same 
peaches, if they could have been transported 
with safety to New York City, would have 
sold for $3. Now Carolina fruits can, with 
safety, and at not too great a cost, be transported 
to New York. The Carolina producer, after 
paying express or freight charges, realizes on 
that market $1.50 per bushel. He would, of 
course, sell in North Carolina at this price, for 
this is the real price at which he sells in New 



DEMAND AND SUPPLY 21$ 

York. While he sells at home for $1.50, this 
price is really regulated by the New York mar- 
ket, and not by that of his own home. And so 
extensive and efficient have become our transpor- 
tation and commercial agencies and facilities, 
that the market price of most of our prod- 
ucts, though produced in the various parts of 
our vast territory, is fixed by the forces of a 
national market, if not indeed by an interna- 
tional one. Let us consider two illustrations. 
The market price of gold, since the cost of its 
transportation is only a very small item, is prac- 
tically the same the world over. Its price is 
regulated by the forces of the world's demand 
and supply. The market price of our cotton, 
while its transportation costs more than does 
gold, is also largely regulated by world forces 
and in a world market. 

A Market not a Geographical Place. — A market 
of goods is in reality not a special geographical 
place. It is anywhere that consumer and 
producer happen to meet and come to an agree- 
ment ; and such an agreement may be made on 
a public highway, or in a Pullman car which is 
flying across the country. The forces of this 
market are, in fact, much more mental than 
material. The products which are exchanged 
are material, but the trade, the agreement to 
exchange, is mental. 



2l6 PRINCIPLES OF WEALTH AND WELFARE 

A Market : Desires to buy and to sell ; Consumer's 
Value. — A market is, therefore, a point where 
all the mental forces of consumer and pro- 
ducer come together. It is indeed a critical 
mental point, in the reaching of which two 
human souls reveal themselves in all their 
selfishness or nobility. It is a point where the 
desires to buy and to sell meet each other face 
to face. These desires, as we know, are depend- 
ent upon the wants which the consumer has 
for a goods, and upon the supply of this goods 
which the producer possesses. The desires of 
the consumer to buy depend not only upon 
his wants for a goods, but also upon the value 
which he assigns to this goods. And the con- 
sumer assigns some value to every product, or 
rather to a certain unit of every product. Dif- 
ferent classes of products are assigned value by 
different classes of consumers. One class of 
consumers demands a certain class of products, 
and thereby gives value to this class of goods. 
Another class of consumers demands a still 
different class of goods, and in consequence 
assigns value to this class. Let us illustrate 
this point. The demand for coarse cotton 
cloth comes in the main from the poorer and 
lower classes of workingmen, and the value of 
this grade of cotton fabrics is in the main given 
by this class of consumers. The beautiful laces, 



DEMAND AND SUPPLY 21/ 

on the other hand, are assigned values by a much 
higher grade of consumers. 

Market Value; Use Value and Cost Value. — 
The consumer by himself does not, however, 
create a market. We must have the producer, 
as well as the consumer, before we can have a 
market. These two persons, or rather sets of 
persons, when they come to an agreement to 
exchange products, have together assigned a 
value to the products, which is in some respects 
different from the value assigned by the con- 
sumer alone. We call this value, which is 
assigned by both consumer and producer, the 
fnarket value. And we call the value which 
the consumer assigns to a goods use value, 
while that which the producer assigns is cost 
value. When the use value and the cost value 
of a goods come to a point of equilibrium, we 
have a market value, and the goods are now 
bought and sold. This market value, which is 
always expressed in a market price, is, therefore, 
the result of the equilibrium of consumer and 
producer, or of demand and supply. 

Market Price (Value) equals Cost of Production : 
the Ideal and Tendency. — When the supply is 
always just as large as the demand for any 
goods and when there is no uncertainty what- 
ever about the quantity of both the demand and 
the supply, the market price is stable. There 



2l8 PRINCIPLES OF WEALTH AND WELFARE 

are no changes in it. If, for instance, the de- 
mand for wheat is always the same quantity 
and the supply of wheat the same amount, the 
market price of wheat will remain exactly the 
same from day to day and from season to sea- 
son. Under such a condztio7t^ if perchance such 
a condition ever exists^ of the demand for and 
the supply of wheats its market price is exactly 
equal to the cost of its production; for the de- 
mand price resolves itself into the cost of pro- 
duction. If the demand is exactly equal to the 
supply, the demand price must be exactly equal 
to the supply price or cost price. In this case 
the market value of wheat per bushel equals 
the cost of growing this bushel, and this cost 
includes wages, rent, interest, pay of business 
management, and insurance. 

Market Price (Value) equals Cost and Profits : 
in Fact. — But such a condition of the demand 
for and the supply of wheat, or of any other 
product whatever, is purely imaginary. In 
actual life the demand for wheat is always 
changing, and so also is its supply. The demand 
and the supply are indeed ever changing, and 
these changes as a rule are not in the same 
ratio. The demand is at one time greater than 
it is at another, while at the same time the 
supply of the goods demanded may be smaller. 
There is likewise ever present an element of 



DEMAND AND SUPPLY 219 

uncertainty In both the demand and the supply. 
These changes in the demand and the supply, as 
well as the uncertainty as to the amounts of 
either, necessarily cause fluctuations in the mar- 
ket price. To calculate, under such conditions, 
exactly what the market price will be in the 
future is, to say the least, very difficult, if not 
indeed impossible. 

And the market price under such actual con- 
ditions never exactly equals the cost of produc- 
ing the goods. Let us illustrate. During one 
season the market price of raw cotton ranges 
from 10 cents to 17 cents a pound, while during 
the following season the market price ranges 
from 7 cents to 1 1 cents. These great changes 
in the market price are due in part to the 
changes in the cost of producing cotton, but 
the cost of production during these two succes- 
sive seasons does not change materially. In 
fact, the cost of producing a pound of cotton 
is only slightly greater the first year than it is 
the second. During both seasons the market 
price is in the main greater than the cost of 
production. In both 17 and 11 cent cotton 
there is a very considerable element of profit. 
It costs the farmer upon the average 6 cents to 
produce a pound of raw cotton, and this cost 
includes the pay of business management and 
insurance, as well as wages, rent, and interest. 



220 PRINCIPLES OF WEALTH AND WELFARE 

The transportation and commercial services, 
which are used to place the cotton on the 
market, cost upon an average 2 cents a pound. 
This makes the total cost at 8 cents. The cot- 
ton which sells at 1 1 cents a pound has in its 
market price 3 cents of profits, 3 cents per pound 
above all cost of producing it ; and that which 
sells for 1 7 cents has 9 cents of profits. 

There may, therefore, be a considerable ele- 
ment of profits in each market price. Under 
the imaginary conditions, of which we have 
spoken, the price equals the cost of production. 
Under the actual conditions of business life, the 
price may be equal to the cost of production 
and profits. And the price may at times be 
below the cost of production. Cotton, which 
costs 8 cents a pound, has sold at times for about 
6 or 7 cents. This is, however, not the rule, at 
least for any length of time or for large quan- 
tities. But under such conditions, when the 
demand is much smaller than the supply, the 
market price equals the cost of production 
minus a loss. The market price may, therefore, 
be stated in the following form : market price 
= cost of production phis profits; or market 
price — cost of productio7i minus loss. And the 
profits or the loss come as a result of the lack 
of balancing or equilibrium of the demand and 
the supply. 



DEMAND AND SUPPLY 221 

Market Price (Value) at Times equals Cost and 
Loss ; Dumping Goods. — We have just said that 
a market price which is below the cost of pro- 
duction is not the rule, though such a price now 
and then controls the market of a few products. 
There are certain quantities of almost every 
product which sell for a much lower price than 
does the larger part of this product. The pro- 
ducer is eager to produce as large a quantity as 
the consumer demands. He desires to supply 
every demand for his goods. But since he can 
never exactly calculate how much the consumer 
will call for, and the consumer is subject to many 
changes in his wants and demands, the producer 
as a rule produces greater quantities than he 
can sell to the consumer at a fair price. What 
becomes of the surplus ? 

That which is left of the supply of a certain 
goods at the end of the season must of necessity 
be sold at a lower price than that which the 
consumer paid during the season. The demand 
for this surplus may not exist long after the sea- 
son is passed ; the goods may be in a very short 
time entirely out of fashion. And the con- 
sumer does not desire to buy it as strongly 
as he did the same goods earlier in the season. 
He will, however, buy it at a much lower price. 
The producer cannot afford to keep the sur- 
plus, He must dispose of it at some price, in 



222 PRINCIPLES OF WEALTH AND WELFARE 

order to make room for products which are in 
higher demand. He now sells a yard of a cer- 
tain cloth at 12 cents, which earlier in the 
season sold for 20 cents, and which perhaps 
cost him at least 15 cents per yard. He dumps 
his surplus goods, to use a commercial phrase. 
While this surplus sells at a price which is be- 
low the cost of production, the larger part of 
his product sold for 20 cents, at a price con- 
siderably above the cost of production. This 
charge has very frequently been brought against 
the monopoly producer, of dumping his surplus 
goods upon Europe, of selling to Europeans at 
a price much lower than that which the Ameri- 
can consumer pays. That the monopoly pro- 
ducer dumps some of his products, there is no 
doubt whatever, but the competitive producer 
also does the very same thing. As a matter 
of business, they both must of necessity do this. 
The dumping is, however, as a rule, after the 
season is over, or almost over, and the Ameri- 
can consumer, as well as the European, receives 
the benefits of reduced prices. 

Increase in Demand ; Market Price. — Under 
the head of consumption, we have spoken of the 
general relations which the consumer's demand 
bears to the price of goods. It is now necessary 
for us to consider this phase of the market some- 
what more in detail and from the point of view 



DEMAND AND SUPPLY 



223 



of the supply of the goods, as well as of the 
demand for them. In a general way we may 
say that an increase in the demand for a prod- 
uct causes an increase in its market price. By 
way of illustration, let us examine the effect of a 
25 per cent increase in the demand for a goods. 
If the goods can be produced at a uniform or 
constant cost — at the same cost per unit of goods 
irrespective of the number of units produced — 
an increase in the demand of 25 per cent will 
cause a corresponding increase in the price of 
the goods, unless the supply of the goods should 
at the same time be increased. If the 25 per cent 
increase in the demand is for a goods which is 
produced at an increasing cost — the more units 
produced the more it costs per unit to produce 
them — the price will for a time increase more 
than 25 per cent. A 25 per cent increase in 
the demand for a goods which is produced at 
a decreasing cost — the more units produced the 
less the cost per unit to produce them — will for 
the time cause an increase in the price of the 
goods, but not to the extent of a 25 per cent 
increase. But all of these statements assume 
that the increase in the demand is sudden and 
that there is for the time no increase in the 
supply of the goods. 

Increase in Demand and Supply; Market Price. 
— This assumption is, however, for most 



224 PRINCIPLES OF WEALTH AND WELFARE 

products, quite imaginary. As a rule the in- 
crease in the demand for a goods is gradual, not 
very sudden. And there is also an increase in 
the supply of the goods, if not at the very same 
time with the increase in the demand for it, cer- 
tainly within a short period. For almost every 
product an increase in the demand not only 
causes an increase in the price of it, but also 
causes an increase in its supply; and the increase 
in its supply tends to bring its price downward* 
The first effect, then, of a normal increase in 
the demand for a goods is an increase in the 
price of it, and the increase in its price causes 
a greater quantity of the goods to be produced 
sooner or later. An abnormal increase in the 
demand for a product, or a demand which is of 
but a few days' duration, will cause an increase 
in the price of the product, but it may not cause 
an increase in its supply. If the increase in 
the demand is of but a short duration, there 
can be little increase in the supply, though the 
market price for the time does increase. It re- 
quires time, in some cases only a few days, while 
in others many months, in which to increase the 
supply of goods. 

Let us illustrate this point. An increase in 
the demand for raw cotton fiber, which continues 
throughout the larger part of the season, causes 
a normal increase in its price. The farmer will 



DEMAND AND SUPPLY 225 

make serious attempts during the following 
season to increase its supply. Whether he can, 
during the next season, produce a greater quan- 
tity of cotton depends not only upon his own 
attempts, but also upon the condition of the 
other agents of production, and upon whether 
the forces of nature are favorable to him. An 
increase in the demand for peaches causes an 
increase in their price. The farmer immedi- 
ately plants more trees, but before he can finally 
bring about an increase in the supply of peaches 
several years must have passed. While it re- 
quires at least one year for an increase in the 
supply of cotton fiber, and from four to six years 
for an increase in the supply of peaches, there 
are other products an increase in the supply of 
which requires but a few days or a few weeks. 

But whether to bring forth an increase in 
the supply of products requires many years or 
only a few days, an increase in the supply in 
the main follows an increase in the price. The 
general tendency or law may, therefore, be 
stated, as follows: an increase in the demand 
causes an increase in the market price; an in- 
crease in the market price causes an increase in 
the supply of the goods; an increase in the sup- 
ply causes a decrease in the price. But if the 
deinand remains the same while the supply of a 
goods increases^ the price decreases^ and a 



226 PRINCIPLES OF WEALTH AND WELFARE 

decrease m the price in turn causes a decrease in 
the supply. Demand and supply always tend, 
therefore, to balance each other, though in this 
tendency the scale bar tips up and down many 
a time before it reaches the point of balance or 
equilibrium. Demand and supply are, then, the 
great master forces of the market. At the point 
where the consumer and the producer come to 
an agreement, there the fundamental and vital 
forces of demand and supply come to an equi- 
librium. And market prices are in the main 
established and regulated by these great forces, 
and throughout all their fluctuations these 
forces are their chief guides. The manipulator 
and gambler in market prices may for the mo- 
ment feel their own importance, but fortunately 
for the masses of men these must, too, yield to the 
masters of all. 

QUESTIONS 

(i) What does the consumer have to do in fixing the 
market price of cotton, corn, houses, railway services ? 

(2) What does the producer have to do in fixing the 
market price of these goods ? 

(3) Is the price of gold ever regulated by a local market ? 

(4) How far does the cost of growing cotton regulate its 
market price? 

(5) The market price of cotton is during one year about 
9 cents per pound. It is during another year about 1 2 cents. 
Why the difference ? 

(6) Are market prices of great importance to the con- 
sumer and the producer? 



SECTION IV 

THE PRODUCTION AND DISTRIBUTION OF 
WEALTH — WELFARE 

CHAPTER I 

DISTRIBUTION : ITS NATURE AND STANDARD 

The Relation of Distribution to Production. — 

As we have already said, there are only two sets 
of human forces at work in all economic life, — 
those of the consumer and those of the pro- 
ducer. These two sets of human forces come 
together in the market, and their resultant is a 
market value. This value, which is always ex- 
pressed in terms of a price, is the mental meet- 
ing point of all the forces and aspects of the 
consumption and production of wealth. How 
much of this value or price belongs to each of 
the different agents which together produce the 
goods? As we have seen, every product or 
form of goods is the resultant of labor, land, 
capital, and business management, working to- 
gether under the state's protection and assist- 
ance. How much of each market price shall 
go to labor, land, capital, business management, 

227 



228 PRINCIPLES OF WEALTH AND WELFARE 

and the state ? This is the question, and it is 
fundamentally and vitally important. There is 
no question in the whole economic realm of 
greater importance. And it is the great task of 
distribution to answer it. The work of pro- 
duction is to build up products piece by piece, 
utility by utility, until they possess as much 
value or as many utilities as the consumer needs 
and demands. The task of the distribution of 
wealth is to analyze each product and to find 
out what part, what utilities, each agent of pro- 
duction has contributed. But is there not a 
key which will unlock all of the chambers of 
distribution ? 

Value, the Key of Distribution as well as of Con- 
sumption and Production. — It is value that is 
the key to all the forces of the consumption and 
production of wealth. Is it not also the key to 
its distribution ? Yes, as we understand it, value 
is the key to all the forces of the distribution 
of wealth; it is at least the ideal according to 
which distribution is ever at work. We mean 
that, for the most part, labor, land, capital, and 
business management, each receives of every 
product the part which it produces, or its equiva- 
lent. We mean that, out of every market price, 
each agent receives, or at least tends to receive, 
the exact value that it adds to the product 
which sells for this price. And this ideal is 



DISTRIBUTION: ITS NATURE AND STANDARD 229 

always at work in distribution, though often- 
times wealth is distributed among the agents 
of production seemingly according to a different 
principle. 

Value given for Value produced : the Standard. — 
Our ideal of the distribution of wealth is, that no 
agent of production should receive more than it 
actually produces, and that no man should con- 
sume more than he actually produces. Value 
to whom or to what value is due, is most cer- 
tainly a standard based upon equity. This, of 
course, means that to the agent which produces 
little only little should be given ; to the agent 
which produces much, much should be given. 
And this ideal of distributing to each agent of 
production the exact amount of wealth which it 
produces, the exact value which it adds, should 
also be the ideal in all aspects of human life, 
whether economic, political, social, intellectual, 
or religious. Our governmental and social or- 
ganizations, our schools and universities, our 
churches and missions, — none of these institu- 
tions have the right to exist and consume wealth, 
unless they produce conditions of wealth or wel- 
fare that are in value at least equal to that which 
they consume. 

As we have already said, wealth is apparently 
at times distributed according to a standard 
which is different from the one we have adopted 



230 PRINCIPLES OF WEALTH AND WELFARE 

as our ideal. Among husbands, wives, and 
children wealth is every day seemingly distrib- 
uted not according to the value added, but 
according to personal love. Charity and phi- 
lanthropy, as well as family affection, also enter 
into the distribution of wealth. The deformed, 
the deaf, the dumb, the blind, and the infirm, 
have wealth distributed to them according to 
the charity and philanthropy of individuals, 
cities, and states. Many men, therefore, ap- 
parently live upon the work of others — in the 
favor of others. 

These exceptions to our standard are, how- 
ever, much more apparent than real. Many chil- 
dren, to be sure, are consumers of wealth, not 
producers of it. And they should, during their 
earlier years, produce not wealth but strength 
and energy of body and mind. They should 
produce that physical and mental strength which 
will in the future possess great productive power 
not only for themselves but also for their 
parents. While during their childhood they are 
for the most part not direct producers of wealth, 
still in many cases they stimulate others to 
greater and greater economic activity and ef- 
forts. The infirm and the deformed also are 
consumers, not producers of products. Their 
fellow-beings must support them. Their fellow- 
beings must produce for them that wealth which 



DISTRIBUTION: ITS NATURE AND STANDARD 23 1 

they consume. But their infirmities are not so 
infrequently the results of overwork on their 
own part or that of their parents, and, therefore, 
a part of that which they consume during their 
infirmity is in reality what they themselves have 
produced during their better days. Though 
both the child and the infirm consume more 
wealth than they produce, even yet they may 
be producers of human welfare. They have 
much power in creating and fostering the spirit 
of unselfishness, of kindness, and of honesty, 
and this spirit is truly a guardian angel of 
our welfare. The support and care of the 
weak and deformed have taught us many ideals 
and standards of conduct in the economic 
realm. 

The Value or Productivity Theory of Distribution. 
— To find out exactly how much each agent pro- 
duces is very difficult. To know exactly how 
much of every product has been produced by 
each agent, and how much of every market price 
should be distributed to each agent, is no easy 
task. The business manager assumes the task of 
producing a certain form of goods. He hires 
labor, land, and capital. These three agents, to- 
gether with his own management, produce the 
required form, say a yard of cotton cloth which 
can be delivered on the market at 50 cents. Each 
agent has produced a part of this cloth — has 



232 PRINCIPLES OF WEALTH AND WELFARE 

added value to it. But exactly how much value 
each agent has added, how much of the 50 cents 
belongs to each agent, this is the great and 
vital question. 

According to our standard of distribution, 
labor should have of this value just as much as 
it has produced, and likewise land, capital, and 
business management should receive of this 
value the exact part which they each have added. 
The fact that the business manager receives the 
50 cents from the consumer makes him the 
chief agent in its distribution. How much of 
this price will he pay to labor, to land, and to 
capital ? As a matter of fact, he has already 
fixed by contract the pay of each of these agents, 
and, therefore, for the time their pay is regulated 
by contract. But what ultimately regulates his 
contract with each of these agents .f* Suppose 
the manager has contracted to pay labor 15 cents 
for its part of the yard of cotton cloth, land 1 5 
cents, and capital 15 cents, and he values his 
own management at 10 cents.^ The cloth, there- 
fore, costs him 55 cents per yard, though at the 
time he is compelled to sell it for 50 cents. Who 
bears the loss ? The manager is compelled by 
his contract to pay 45 cents to the other agents. 
This leaves him only 5 cents for his own man- 

^ These figures are not at all the actual ones. They are merely 
taken for the purpose of illustration. 



•«-*., 



DISTRIBUTION: ITS NATURE AND STANDARD 233 

agement, though this is worth at least 10 cents. 
The manager must bear the loss on this particu- 
lar yard of cloth. He cannot possibly shift it to 
the other agents. Before contracting with the 
agents of production to produce another yard of 
cotton cloth which sells on the market for 50 
cents, he will force them, if he can, to accept less 
value for their part, say 13 cents each. This 
second yard sells for 50 cents. And after the 
manager pays the other agents 1 3 cents each, he 
has left for his own management 10 cents, and 
also I cent for profits. 

The Product of Each Agent figured on the Mar- 
gin: the Standard of Pay. — Why will the busi- 
ness manager make a contract with the other 
agents to pay them a certain value for each 
product made ? He agrees to pay labor 1 5 cents 
or 13 cents for its part of the product, because he 
believes that labor creates in cotton cloth at least 
1 5 cents or 1 3 cents of value. The experience 
of his fellow-managers, as well as of himself, 
makes it possible for him to calculate with con- 
siderable accuracy how much productive power 
each of these agents has for him. The managers 
experiment with the number of units of each 
agent which they can employ to greatest advan- 
tage. They figure on the margin of their produc- 
tivity. Shall they pay a laborer 1 5 cents a yard 
or shall they pay him 14 cents or 16 cents ? The 



234 PRINCIPLES OF WEALTH AND WELFARE 

margin of i cent per yard Is of very great im- 
portance to both the manager and the laborer. It 
is also of vital importance to the land and capital 
which he employs in producing this yard of cloth. 
The amount which he will pay either of these is 
figured on the margin of their productive power. 

Agents paid in Proportion to their Productive 
Power: the Ideal, though the Changes in their 
Demand and Supply give to the Employer a Point of 
Advantage. — The fact that the employer or 
business manager is the one who makes the cal- 
culations of the productive power of the other 
agents, and the fact that he is also the chief 
instrument in the actual distribution of wealth, 
give him a point of enormous advantage over 
the other agents. In contracting to pay wages to 
ordinary laborers, rent to land, interest to capital, 
the manager as a rule makes use of his superior 
and advantageous situation. He pays to these 
agents the smallest value possible. He often- 
times drives hard bargains with them, especially 
with the ignorant laborers, and not infrequently 
keeps for his own management a much larger 
part of each product than his managing ability 
really produces. 

This manager at times not only pays his own 
managing ability much more than it really pro- 
duces, but he also receives the profits which 
come as a result of the lack of equilibrium in 



DISTRIBUTION: ITS NATURE AND STANDARD 235 

the demand for and the supply of his products. 
He must, however, bear the burden of a loss, in 
case he cannot sell his products for a price which 
will fully cover the cost of their production. 
And all of the profits do not long remain in the 
manager's possession. Profits cause him to at- 
tempt to produce a greater quantity of goods. 
In order to produce more goods, he must em- 
ploy a greater quantity of the other agents, and 
in order to secure a greater quantity of these 
agents he must, according to the law of demand 
and supply, pay higher wages, higher rent, and 
higher interest. Losses, on the other hand, are 
not all permanently borne by the manager. 
Under such a condition of production, he pro- 
duces a smaller quantity of goods, and conse- 
quently his demand for the other agents is 
smaller and their pay is at a lower rate. 

The employer or manager must, therefore, 
work in accordance with the great economic 
law of demand and supply, which operates not 
only on the part of the consumer of his goods 
but also on the part of the agents of their pro- 
duction. Were there no changes in the demand 
for and supply of his goods, and were there no 
fluctuations in the demand for and supply of 
the agents of production of which he must make 
use, there would of course be no changes in the 
price at which he sells his goods and no changes 



236 PRINCIPLES OF WEALTH AND WELFARE 

in the value which he pays to his agents. Under 
such conditions it would be comparatively easy 
to find out exactly what each agent produces. 
Under such conditions the manager would like- 
wise be compelled by great economic forces to 
pay each agent the exact value which it adds to 
every product. His position of advantage would 
not enable him to obtain too great rewards for 
his own management and also too great profits. 
While such conditions are not the actual ones in 
a progressive community like our own, still the 
tendency is everywhere and at all times toward 
an equilibrium in the market of ordinary prod- 
ucts, and also in the market of the agents of 
their production. As the ordinary goods sell 
for the most part according to their value, so 
likewise the agents of production sell for the 
most part according to their value, according 
to their productive power. 

QUESTIONS 

(i) What do you mean by the distribution of wealth? 

(2) Is value important in the consumption, production, 
and distribution of wealth? 

(3) Would you distribute to labor, land, capital, and busi- 
ness management, the exact amount which each of these 
agents produces? 

(4) Does the distribution of wealth have much to do with 
your welfare ? 



CHAPTER II 

DISTRIBUTION OF WEALTH AND WAGES 

Importance of Wages. — To the employer, as 
well as to the laborer, wages are most vitally im- 
portant. As labor is the most vital problem in 
the production of wealth, so wages are the most 
perplexing and difHcult one in its distribution. 
To find out exactly what labor produces in every 
product which is sold on the market, to find out 
the value which labor adds to this product, and 
to pay to the laborer wages which exactly repre- 
sent his product, these are problems which con- 
front every laborer and every employer. If the 
worker is not paid in wages exactly that which 
he produces, he is robbed of a part of his earn- 
ings, and in consequence has a smaller quantity 
of wealth for his own consumption ; and his pro- 
ductive power depends very largely upon the 
quantity and quality of the goods which he con- 
sumes. But if the laborer, by one means or an- 
other, obtains in wages more than he produces, 
some other laborer or agent of production is 
deprived of a part of his earnings, or the con- 
sumer has to bear the burden, in a higher price, 
when he buys the product. 

237 



238 PRINCIPLES OF WEALTH AND WELFARE 

Wages regulated by the Inherent Power of 
Labor at work under the Conditions of its Supply 
and Demand. — As we have already said, wages 
are in the main paid according to the pro- 
ductive power or efficiency of the laborer. 
While there are exceptions to this standard, still 
these exceptions do not destroy the standard 
itself. The employer pays for labor as small 
wages as he can, and at times he pays different 
wages for the same work, but the tendency every- 
where and at all times is to pay wages in pro- 
portion to the product which the laborer creates. 

This productive power of the laborer depends 
not only upon his own strength, judgment, and 
ambition, but also upon the demand for and 
supply of labor. Labor is in fact, from many 
points of view, exactly like the ordinary products 
or commodities which are daily bought and sold 
in the markets. The market price of raw cotton, 
for instance, varies from time to time, though 
the inherent properties or qualities of the cot- 
ton fiber remain exactly the same. The market 
price of this commodity, as of all the other com- 
modities, depends not only upon its own inher- 
ent properties, but also upon the quantity of it 
as compared with the demand for it. While 
there are many fluctuations in the prices of this 
commodity, its prices are always regulated for 
the most part by its efficiency or value; and the 



DISTRIBUTION OF WEALTH AND WAGES 239 

value of every article in the whole economic 
realm is the product of its own qualities work- 
ing under the existing conditions of its demand 
and supply. The prices of labor — wages — are, 
therefore, the results of the inherent power of 
labor at work under the existing conditions of 
its demand and supply. 

Such a standard of wages by no means as- 
sumes that every laborer shall be paid the same 
wages. It only assumes that every laborer of 
the same eflficiency and under the same condi- 
tions of the demand for labor and its supply shall 
receive the same wages. There are, from the 
point of view of their productive power, many 
different grades of laborers. Laborers differ 
widely in their strength, energy, judgment, and 
ambition. They also work amid different con- 
ditions of the supply of labor as compared with 
the demand for it. Two men of the same in- 
herent productive power live in different eco- 
nomic locations. One receives in daily wages 
^i, while the other for the same work receives 
^1.50. The difference in their earnings comes 
in this case from the differences of their eco- 
nomic situations. And in the same economic 
situation we, as a rule, have many grades of 
labor and consequently many grades of wages. 
One laborer in New York City receives $2 a 
day, another ^3, and another ^6. 



240 PRINCIPLES OF WEALTH AND WELFARE 

According to our standard of wages, every 
laborer of the same grade of efficiency and 
working in the same economic situation should 
receive the same wages. This standard is be- 
yond a doubt the ideal in the payment of wages, 
and it is more or less fully realized in the actual 
distribution of wealth into labor. The laborers 
who are of the same grade, and who are at work 
under the same conditions of demand and sup- 
ply, are competing with each other, and the 
natural tendency for them to receive the identi- 
cally same wages is very strong. The compe- 
tition between one grade of labor and another 
grade is, however, very slight ; the man who can 
earn $6 a day has little, if any, competition to 
meet on the part of the man whose productive 
power is measured by $2 or $3. Let us consider 
an illustration. The competition between the 
cotton spinners of Massachusetts and the car- 
penters, brick masons, or electricians, of the same 
location is slight, though within each group 
of these workers there is much competition, 
and wages tend to the same level. The cotton 
spinner in the South Carolina mills receives 
10 cents a day for each machine he operates. 
The spinner in the Rhode Island mills receives 
12 cents per day for each machine. Let us 
assume that they each operate the same num- 
ber of machines. Their own energy and skill 



DISTRIBUTION OF WEALTH AND WAGES 241 

are then the same. The difference in their wages 
is then determined by the difference in the 
demand for and supply of labor in the two loca- 
tions. The supply of labor in Rhode Island, as 
compared with the demand for it, is smaller, and 
consequently for the same work higher wages 
are paid in Rhode Island than in South Caro- 
lina. 

But why does labor not migrate from South 
Carolina to Rhode Island, in order to receive 
the higher wages? Why does it not move 
from a place where the demand for it is smaller 
to a place where the demand for it is greater ? 
Love of home, fear of failure in the new situ- 
ation, and indifference to higher wages in part 
explain the lack of movement from one place to 
another. The chief reason for the failure to 
move is, however, the greater cost of living. 
While wages are higher in Rhode Island, the 
cost of living there is also higher. The cost of 
producing labor services, as of producing all 
other commodities, tends to regulate the price 
of labor, or wages. Ten cents in South Carolina 
will bring the laborer at least as much comfort 
as will 1 2 cents in New England. 

We have in fact a great variety of wages. 
We have difference in wages because of dif- 
ference in skill, because of difference in the 
inherent power of labor, because of difference 



242 PRINCIPLES OF WEALTH AND WELFARE 

in the supply of this labor as compared with the 
demand for it, and finally because of difference 
in the cost of producing labor services in the 
different groups of work and in the different 
locations of these groups. But throughout our 
great variety of wages runs the idea of the 
productivity of labor. The conditions of de- 
mand and supply certainly have a profound 
influence over wages, but the most vital force 
in their regulation is the inherent productive 
power of the laborer. 

The Peculiarities of Labor as a Commodity; 
Wages. — We have already said that labor may 
be considered in the same general way as all 
the other commodities, which are produced and 
consumed, and that its price is regulated by its 
inherent properties and by the conditions of its 
demand and supply. Labor as a commodity 
has, however, certain peculiarities which differ- 
entiate it from the other commodities that are 
on the market. And we shall treat of these 
peculiarities in the following paragraphs. 

(i) When labor is bought or sold, it is the service 
of the laborer, not his person, which is exchanged. 
The personal element exists in this kind of an 
exchange in both the buyer and the commodity 
bought, and this personal element is always a 
most important one. Labor service is truly a 
commodity, but it cannot be dealt with in ex- 



DISTRIBUTION OF WEALTH AND WAGES 243 

actly the same manner and with the same spirit 
as can the ordinary commodities of consump- 
tion, such as a ton of coal or a pound of cotton. 
The labor commodity always possesses, even 
in the case of the despised slave, a personal 
individuality which is not to be found in the 
other commodities ; and this is true of both 
common labor and of managing labor. Capital 
and land, as well as all the many varieties of 
the commodities of ordinary consumption, are 
totally lacking in this personal individuality. 
The personal element in the wage problem is, 
therefore, a most vital one, while in the prices 
of other commodities there is no such a factor. 
(2) As a result of this persofial element^ labor 
service cannot be sold except in connection with 
the laborer himself , The laborer cannot, there- 
fore, live in one location and sell his services in 
a far-away location ; he must migrate from field 
to field before he can find a greater market for 
his labor commodity. The American wheat 
grower can, on the other hand, sell his products 
in any part of the world without himself moving 
from place to place. All the ordinary com- 
modities tend to compete with each other the 
world over, on a great international market. 
But for labor, and for land, as we shall later see, 
there is a much greater lack of mobility. The 
prices of labor services are in consequence 



244 PRINCIPLES OF WEALTH AND WELFARE 

largely regulated by the forces of a local market, 
not by those of a national or international one. 
As we have already seen, the wages in New 
England for the same grade of efficiency are 
higher than those in the Southern states. Even 
within the New England states there are many 
different local markets for labor. But let us 
consider two more illustrations. In Japan labor 
is abundant in proportion to the demand for it, 
and wages are consequently low ; they are gov- 
erned almost entirely by the forces of the differ- 
ent Japanese labor markets. In the western 
sections of our own country, on the other hand, 
labor is much less abundant than it is in Japan, 
and wages are much higher. While some labor 
comes from Japan to our Western coast, still it 
is as yet in comparatively small quantities. 

(3) An increase in the dema7id for labor ser- 
vices is by no means immediately followed by a 
corresponding increase in their supply. If labor 
were very mobile, an increase in the demand 
for it in one place or group of work would be 
immediately followed by an increase in the 
supply of it in that place or group. It would 
migrate from a place of smaller demand and 
wages to one of greater demand and wages. 
Labor is not, however, readily mobile; the 
migration of labor services is in actual fact com- 
paratively slow. And an increase in the supply 



DISTRIBUTION OF WEALTH AND WAGES 245 

of labor by means of the excess of births over 
deaths is still slower. In fact it requires from 
fifteen to twenty-five years in which to rear a 
laborer. But it requires as a rule only a short 
time in which to produce the other commodities. 
An increase in the supply of these commodities 
follows within a short time the increase in the 
demand for them. An increase in the demand 
for corn, for instance, is usually followed by an 
increase in its supply within one season. 

Supply and Demand of Labor ; Wages. — 
While to increase the supply of labor by an 
increase in the birth rate and a decrease in the 
death rate is slow, still higher wages mean in 
the long run an increase in the supply of labor. 
Higher wages tend in the main to bring into 
the world a greater number of children. Higher 
wao:es also tend to cause a decrease in the 
death rate, for under such conditions children 
are cared for in a more efficient way. The 
reverse is, of course, equally true ; a decrease in 
wages tends to decrease the supply of labor. 
We have already seen that an increase in the 
demand for ordinary products creates a higher 
price, and a higher price causes a greater supply 
of these goods to be produced. The greater 
supply, however, tends to bring the price down- 
ward. And this twofold tendency is for the 
most part true of labor also. An increase in 



246 PRINCIPLES OF WEALTH AND WELFARE 

the demand for it causes higher wages^ higher 
wages create a greater supply of it, a^id the 
greater supply tends to bring the wages down- 
ward. If, however, the demand for the other 
commodities and for labor continues to increase, 
an increase in the supply of them, while it tends 
to cause a decrease, will not in actual fact bring 
about much decrease in their prices and wages, 
if indeed any. A constant and continuous in- 
crease in the demand will cause such an in- 
crease in prices and wages, unless the increase 
in the supply is as great as that in the demand. 
There is, therefore, a vitally close connection 
between wages and the supply of labor ; popu- 
lation is indeed subject to the great law of the 
economic realm, to the law of supply and de- 
mand. Its size has a profound influence upon 
wages, and wages in turn influence its size. 

This law is universal. The forces of demand 
and supply are always and everywhere at work. 
They are ever at work in the market of all 
products and commodities ; they are at work in 
the market of labor, land, capital, and business 
management, as well as that of all the countless 
products of these agents. They are at work in 
the wages of the laborer who toils in China, as 
well as in England and the United States. 

As we have seen, wages in China have 
become lower as population has increased, be- 



DISTRIBUTION OF WEALTH AND WAGES 247 

cause the demand for labor has not grown as 
rapidly as has the supply of it. In the United 
States, on the other hand, population has had 
a very marvelous increase, but the demand for 
labor has had a still greater increase, and in 
consequence wages have become greater and 
greater. In China, while the individual laborer 
may possess much energy and skill, he has but 
little of the other agents of production with 
which to work; the demand for his service is very 
small. The same Chinese laborer at work in 
our own country, where economic society offers 
him the other agents in great abundance, where 
the production of wealth demands his services, 
and where the supply of labor as compared with 
the demand for it is small, here his wages are 
much higher. 

Efficiency of Labor ; Wages. — We have seen 
that wages are regulated by the laborer's energy 
and skill at work under the conditions of the 
supply of his services and the demand for 
them. And these inherent properties of the 
individual laborer are in turn profoundly in- 
fluenced by the price at which he sells his ser- 
vices. The quality of any ordinary product is, 
as we know, largely influenced by the price at 
which it sells on the market. A small price, as 
a rule, means a poor quality. Six cents a yard 
for cotton cloth means of necessity a coarse 



248 PRINCIPLES OF WEALTH AND WELFARE 

quality of fabric. The quality of labor, as that 
of all the other commodities, is also largely 
dependent upon the price for which it sells. 
The worker who receives in wages $6 a day 
can afford to do a high grade of work, while 
the worker who receives but 50 cents a day 
cannot afford to put forth a high grade of 
service. The relation between efficiency and 
wages and between wages and efficiency of 
labor is, therefore, very close and vital. It is, 
then, very necessary that the laborer receive in 
wages his full earnings. It is necessary that 
he be paid in full for the product which he 
produces, not only for the sake of the worker 
himself but also for the sake of the permanent 
productive power of the whole community. The 
employer of labor, who by one means or another, 
is able to keep for himself a part of that which 
labor produces, who does not pay in wages for 
full value received, harms not only the individ- 
ual laborer to whom he pays such wages, but 
also the productive power of the very service 
which he himself buys. Such an employer in 
the long run suffers, though for the time he 
seems to gain. 

A solution of our great and perplexing wage 
problem upon any other principle than that of 
the efficiency of labor at work under the exist- 
ing conditions of its demand and supply, will 



DISTRIBUTION OF WEALTH AND WAGES 249 

cause a decrease in the welfare not only of the 
individual laborer but also of his employer and 
the whole public. A solution upon any other 
principle can never be permanent. It does not 
recognize the universal principle of right and 
justice. The employer who by means of his 
advantageous position over labor does not pay 
wages upon the ground of the product made 
by the laborer, who does not pay for full value 
received, is to this extent a robber of labor ; and 
as a robber he must sooner or later pay the 
penalties. On the other hand, if the laborer 
by means of unions, boycotts, and strikes col- 
lects in wages more than he produces, more 
than full value given, he also is a robber. 

QUESTIONS 

(i) If a man's wages are doubled, is his welfare also 
doubled ? 

(2) A man receives in daily wages $2 ; his friend receives 
only ^i. Why the difference? What regulates the wages of 
each ? ■ 

(3) Is the price of labor regulated in the same way as 
are the prices of the ordinary commodities — as, for instance, 
cotton or corn? 

(4) What do strength and skill have to do with wages ? 

(5) Labor is abundant. Will its wages be high? 



CHAPTER III 

DISTRIBUTION OF WEALTH AND WAGES ; TRADES 
UNIONS AND FACTORY ACTS 

Importance of Combination to Labor. — That 
the principle of combination possesses great 
productive power for labor, we have already 
shown. And this principle has been put into 
successful operation. The conviction that by 
uniting with each other individual laborers may 
make themselves much more efficient, and es- 
pecially much more influential on the labor 
market, has now become exceedingly strong 
and active. The present problem of wages is, 
therefore, not simply one which the individual 
employer and the individual laborer can solve. 
It is more largely a problem of the corporation 
manager and the trade or labor union manager. 
Combination of laborers, though a working 
principle of but two centuries of age, is never- 
theless now a great and vital economic, political, 
and social force. Combination in the man- 
agement of a business is likewise both a new 
and a very powerful institution. Both of these 
organizations have, as we have seen, a great and 

250 



WAGES: TRADES UNIONS AND FACTORY ACTS 25 1 

fundamental influence in the production of 
wealth. They have even greater influence in 
its distribution. It is our purpose in this con- 
nection to discuss some of the effects of combi- 
nation among the laborers, both upon their 
wages and upon their general treatment at the 
hands of the employer. Later we shall consider 
the effects of combination in business manage- 
ment upon the pay of management. 

Unions : their Extent in England and the United 
States Compared. — Trades unions, as these or- 
ganizations of laborers or employees are called, 
have not by any means developed to the same 
extent in many different countries. In England, 
where they had their beginning, and where in- 
dustrial life has had its greatest and highest 
development, their growth has been greatest. 
Great Britain, with only about one half of the 
population of the United States, has practically 
as many members in her trades unions as we 
have. Her unions have a membership of about 
two millions. But when our economic life is 
analyzed and compared with that of England, it 
is found that we have developed the higher 
forms of production to only about one half of 
the extent that England has. We are still very 
largely agricultural, and unions do not and 
really cannot exist among the laborers of our 
farms which are scattered far and wide. More 



252 PRINCIPLES OF WEALTH AND WELFARE 

than three fourths of our vast area still belongs 
to that group of production which is called 
agriculture. But the people of Great Britain 
are largely at work in that group of production 
which we call manufacture. From this point 
of view, trades unions have developed almost to 
the same degree in both countries. 

Unions; their Purposes and Methods. — Under 
the head of labor as a producing agent, we have 
seen that the productive power of labor depends 
not only upon its supply and the demand for 
it, but also upon the individual's capacity and 
the method of employing his capacity. The 
union method is to employ this capacity in such 
a way as to increase both its inherent power 
and its ability to sell itself on the labor market. 
And this method is adopted for the most part by 
men of ordinary talent. One individual laborer 
of this class is profoundly ignorant of the 
other laborers of the same class, and with whom 
he is always competing on the labor market. 
He also knows exceedingly little of the great 
forces and problems of production. On the 
other hand, his whole economic situation and 
his ability to market his labor are usually very 
well known to the employer. This employer is 
oftentimes eager enough to take advantage 
of the individual laborer of this class of skill 
and to pay him, really to compel him to accept, 



WAGES: TRADES UNIONS AND FACTORY ACTS 253 

wages which are not at all an equivalent of the 
value he creates. The purposes and methods 
of the union are to improve the conditions of 
such a laborer and to enable him to demand 
higher wages and better conditions under which 
to work. 

Methods of the Unions in Time of Peace. — 
There are two peaceful methods which have 
been employed by the unions for the accom- 
plishment of these purposes : limiting the num- 
ber of laborers, and collective bargaining. 

(a) Limit to Number in One Group of Work; 
Wages, — The first of these methods places the 
individual laborer in a position of advantage 
in a really strategic position, so that he as an 
individual may secure higher wages for his 
labor when he sells it to the employer. This 
individual may for a time support himself out 
of the union's funds ; and, not being compelled 
to sell his labor every day, he has a distinct 
point of advantage in bargaining for wages. 
By refusing to admit members, the union may 
limit the number of workers in a special field. 
It may also make this field of work exclusively 
unionized. By these acts the union enables 
the individual laborer to obtain higher wages. 
It keeps the supply of labor in certain fields 
at a small amount, and according to the great 
law of supply and demand the laborer sells 



254 PRINCIPLES OF WEALTH AND WELFARE 

his services at a higher price. This method is, 
however, by no means so powerful as the one 
which we call collective bargaining. 

{b) Collective Bargaining; Wages, — Even 
though the individual worker is by his union 
given a position of advantage in selling his 
services, still he is a very inefHcient trader as 
compared with many of the clever and shrewd 
employers. Individual bargaining, though un- 
der the influence of a powerful union, is by no 
means so successful as that which is conducted 
by the most skilled manager of the union. By 
this latter method, the manager of the union 
makes with the employer all the bargains for 
wages. The manager, who is, as a rule, the most 
skilled and intelligent of all the members of the 
union, knows the labor market. He knows both 
the supply of the labor of a certain grade, and the 
demand for this very grade of labor. He also 
knows how to deal with men ; and the prices 
which he secures for the labor that he sells are 
higher than those received under the method 
of individual bargaining. Collective bargain- 
ing is, therefore, a powerful method, provided 
the employer will deal with such a union man- 
ager. And the union, by reason of its common 
funds, which are frequently large, possesses a 
great instrument of power that can be used 
against the employer. If the employer refuses 



WAGES: TRADES UNIONS AND FACTORY ACTS 255 

to recognize the union manager, or if he will 
not pay for labor as large a price as the union 
manager demands, the laborers may cease to 
work for him ; they can support themselves for 
a time out of the union funds. This situation 
unquestionably gives the union a very distinct 
point of advantage in selling its labor. 

Standard of Wages and Work fixed by Union 
and Employer. — Although the second method is 
by far the more powerful and successful, it is of 
necessity much more autocratic than is the first 
method. Collective bargaining means definite 
rules of wages, hours, and conditions of work. 
Something of an absolute standard of work and 
wages must be maintained. From one point of 
view, this more or less absolute standard takes 
from the individual laborer much of his personal 
liberty. But, from another point of view, this 
standard brings to him more liberty; his em- 
ployer can no longer exercise such great control 
over him. This collective bargaining and this 
standard of work and wages may not be a hin- 
drance to the employer. If the employer works 
with labor on a large scale, he is compelled to 
maintain such a standard of work and wages, 
whether he employs union or non-union labor- 
ers. Collective bargaining and standards may 
at times, however, become a great hindrance to 
the employer. If the demands of the union 



256 PRINCIPLES OF WEALTH AND WELFARE 

manager for wages are greater than the labor- 
er's services are really worth, if more value is de- 
manded and received than the laborer produces, 
collective bargaining becomes not only a hin- 
drance to the employer but also a burden to the 
consumer of the goods which he produces. But 
suppose that the employer refuses to grant 
the demands of the union manager, and rejects 
his standards of wages and conditions of work. 
What will the union do ? It may propose or 
accept other standards, or it may resort to in- 
struments of war. 

Methods of the Unions in Time of War. — Of 
all these instruments of war the most powerful 
are the boycott and the strike. 

(a) Boycott; Wages. — The laborers, non-union 
as well as union, may come to an agreement not 
to buy any kind of goods whatever of certain 
persons, who have in their stock the products of 
the employer against whom the laborers have a 
grievance. Such an agreement among non- 
union laborers is as a rule ineffective, but when 
it is made between the numerous members of a 
powerful union its influence is enormously great. 
The dealer's business begins to decrease. If 
the boycott continues for a long time, he must 
fail, as his trade with the laborers is vitally im- 
portant. The dealer must save himself. He 
brings pressure to bear upon the individual or 



WAGES: TRADES UNIONS AND FACTORY ACTS 257 

corporation producer, from whom he buys a 
part of his goods, and against whom the laborers 
have a grievance ; he ceases to buy his products. 
Whether this producer will yield to the demands 
of his laborers, in order to keep the trade of his 
retail dealers, depends upon the force of the 
boycott and upon the circumstances and dis- 
position of the producer. 

Such an instrument as this belongs to the de- 
mon of war, certainly not to the guardian spirit 
of peace. That it has a basis in sound ethics, 
few thinking people will admit. We believe that 
one individual has the perfect moral right to stop 
buying goods of any dealer or producer when- 
ever he deems it best for his own interest. But, 
when he influences other individuals and causes 
them to make an agreement with him not to buy 
products of certain persons, he transgresses a 
vital principle of morals and of religion. But the 
boycott is an instrument of war, and the union 
managers make few attempts to defend it on 
moral or religious grounds. They make use of it 
as an instrument of expediency and power. 

{b) Strike; Wages. — The boycott is, however, 
not the most powerful instrument of war with 
which labor fights. It is the strike which has 
become not only the most powerful instrument 
of industrial war but also one of the forces which 
disturb the modern economic realm to its very 



258 PRINCIPLES OF WEALTH AND WELFARE 

foundation. The simple form of a strike is for 
the laborers to stop work, when their demands 
for wages and conditions of work are not granted 
by the employer. But this simple strike has little 
effect. The employer buys the services of other 
laborers, and the strikers must seek new fields of 
employment. The second phase of the strike 
now appears. The laborers not only stop work, 
but they also attempt to prevent the business 
manager from employing other laborers. In 
this attempt they bring great pressure against 
the employer. They, as consumers, declare a boy- 
cott against his products, and not infrequently 
do they raise the hand of destruction against 
his plant. They also bring great pressure against 
the non-union laborers who would take their 
places. Against these laborers the strikers make 
threats of violence and at times perform deeds 
of violence. The places of the strikers must not 
be filled ; otherwise the strike almost completely 
fails. Even non-union strikers resort to pressure, 
and at times to violence, upon their employer 
and upon those laborers who would take the 
places of themselves, though their attempts are 
by no means as successful as those which are 
made by the powerful unions. 

Causes of Strikes and their Success. — This great 
instrument of economic war has been resorted to 
for many different causes, and its results have 



WAGES: TRADES UNIONS AND FACTORY ACTS 259 

been exceedingly varied. The following statis- 
tics of the causes and successes of the strikes, 
which occurred in our own country during the 
last two decades of the nineteenth century, give 
us a graphic, if not indeed an interesting picture. 
Of all the strikes declared during these twenty 
years, 28.70 per cent were simply for higher 
wages, and of these strikes only 29.85 per cent 
failed entirely. For increase of wages and re- 
duction of hours, there were 11.23 per cent, of 
which 16.43 P^i' cent were complete failures ; for 
reduction of hours simply there were 1 1.16 per 
cent, and of these strikes 41.91 percent failed 
entirely. Against the reduction of wages, there 
were 7.17 percent, and 54.32 percent of these 
strikes failed completely. Out of sympathy for 
other strikes and to aid these strikes, there were 
3.47 per cent, of which 72.64 per cent were com- 
plete failures. To prevent the employment of 
non-union laborers, to make the control of the 
union over the employer more complete, there 
were 2.34 per cent, and of these strikes 31.41 per 
cent failed entirely. There were also, during 
this period, strikes for many other causes, but 
the strikes for the causes which we have just 
mentioned constituted the larger part. Of all 
the strikes of this period about 60 per cent were 
for wages and hours of work, and upon the 
whole strikes for these causes were much more 



26o PRINCIPLES OF WEALTH AND WELFARE 

successful than those for any other causes. But, 
of the strikes for all causes, 33.5 per cent of those 
ordered by union laborers failed and 55.4 per cent 
of those ordered by non-union laborers failed. 
Cost of Strikes. — During these twenty years, 
188 1 -1 900, there occurred the great number of 
23,700 strikes and lockouts,^ and these involved 
no less than 6,610,000 workers. The loss to 
the laborers alone, as far as it can be estimated in 
wages, — and their wages constituted only a part 
of their total loss, — amounted to the enormous 
sum of #306,683,000. And the employers 
suffered, by the stoppage of their factories and 
plants, and by the destruction of their property, 
not less than #142,659,000. A total loss of 
#449,342,000 ! These strikes and lockouts en- 
tailed a great loss not only upon the laborer and 
his employer, but also upon the consumer of the 
products of these workers. Much of this great 
loss to the laborer and the employer was shifted 
upon the shoulders of the consumer. But this 
great financial loss to the laborer, the employer, 
and the public, is by no means all of the loss. 
These strikes and lockouts also brought into 
our life disturbances, demoralization, and bitter 
feelings, the cost of which no one can ever 
calculate. American economic, political, and 

1 Employers closed their mills, etc., in order to forestall 
strikes. 



WAGES: TRADES UNIONS AND FACTORY ACTS 261 

social life has been disturbed by these industrial 
wars to its very foundation. 

Ethics of Strikes. — Can such wars be defended 
by sound principles of morals ? We believe 
that the individual laborer has the perfect legal 
and moral right to stop work, whenever he and 
his employer cannot agree upon wages and 
the conditions of work. The owner of ordinary 
commodities most certainly has the right to 
hold his goods until he can sell them for the 
price which he desires, and the laborer is in a 
large sense such an owner. Individual workers 
likewise may agree to stop work, whenever 
the employer does not pay them a sufficient 
price for their services. But this simple form of 
a strike is of very little effect, and it is now rarely 
ever used. The laborers agree and pledge 
themselves not only to stop work, suddenly as a 
rule, but also to employ every possible means to 
prevent the employer from filling their places. 
These means are employed against the business 
manager, and also against the non-union laborers 
who would take the places of the strikers. The 
strikers as consumers boycott the employer's 
products, and as strikers they oftentimes de- 
stroy his property. Against the workers who 
are about to take their places, they use intimi- 
dation, threats, and actual violence. Can such 
a form of the strike as this be defended in sound 



262 PRINCIPLES OF WEALTH AND WELFARE 

morals and ethics ? We cannot think so. And 
the managers of such a strike make few serious 
attempts to defend its principles. They appreci- 
ate its power and employ it as a means of war. 
They also not infrequently declare that the 
moral standards which are accepted in times 
of peace cannot apply in times of war. They 
are working primarily for results which will 
benefit themselves in higher wages and shorter 
hours ; they care less for the principle involved. 
They well know that at times the employer 
does not deal with them on the principle of sound 
morals, and that he drives hard bargains with 
the poor and ignorant worker. They should 
likewise know, and thoroughly appreciate the 
fact, that wrong conduct on the part of an oc- 
casional employer affords no moral defense 
whatever for their own acts of wrong. 

For either employer or laborer to resort to the 
use of expedients, which have no foundation 
in sound ethics but which bring temporary 
benefits to themselves, usually at the cost of 
others, is for a people to degrade itself. For 
any man, it makes no difference what his 
economic position may be, it makes no difference 
whether he be a simple toiler or a great em- 
ployer, to use such warlike instruments for his 
own advantage alone, is to divorce economic 
activity and effort from ethics and religion. 



WAGES : TRADES UNIONS AND FACTORY ACTS 263 

Methods of Relief: to do away with Boycotts 
and Strikes. — To change such an acute and un- 
sound situation is now commanding the most 
serious attention of the business man, the states- 
man, the teacher, and the preacher. This 
gigantic struggle between the laborer and the 
employer, between labor and capital, as it is 
popularly though incorrectly called, is unques- 
tionably our greatest and most vital problem. 
It has come as a result of a lack of adjustment 
between that agent of production which we call 
business management and that other agent 
called labor. And the chief point of conflict 
between these two agents of production is not 
in reference to the production of certain prod- 
ucts, but in reference to their distribution. The 
fundamental reason for this war is, we believe, 
the fact that the business manager has not paid 
to labor a sufificiently high price ; he has not 
distributed unto labor all the value that labor 
has created. Though the union manager is 
very largely responsible for some of the worst 
aspects of this terrible industrial war, the trade 
or labor union itself came into existence because 
labor was not receiving its due earnings. Every 
solution of this very vital and grave problem, it 
makes no difference what the special form of 
the solution may be, must be based upon the 
fact that both parties are in their conduct partly 



264 PRINCIPLES OF WEALTH AND WELFARE 

in the right and partly in the wrong. The 
fault is not entirely with the laborers or with 
the union of laborers. Nor is it wholly with 
the business manager or with the union of busi- 
ness managers. Both parties are vitally con- 
cerned, and both have sinned and violated the 
great ethical and religious principles upon which 
all economic conduct should be based. The 
form of the solution must, therefore, be of a 
twofold kind, — - one in which both parties work 
together, — and it must be based upon the great 
moral principles of man and of God. 

(a) Conciliatio7i ; Wages, — The wage prob- 
lem, which always exists between the employer 
and the laborer, must then be solved along the 
line of conciliation ; and this conciliation must 
be worked out under the powerful influence of 
public opinion, and under a certain amount of 
governmental regulation. For conciliation to 
be at all easily effected, each party must main- 
tain a special and permanent board, whose 
purpose it is to consider all the points in dis- 
pute, or a single board composed of an equal 
representation from each party. These boards 
should be not only permanent, but also com- 
posed of the very ablest and best men. But 
this form of the solution assumes that the 
laborer, as well as the employer, is organized into 
some form of a union. Such boards are now 



WAGES : TRADES UNIONS AND FACTORY ACTS 265 

in existence in many parts of the world where 
industrial war occurs, and the results of their 
operation have been for the most part success- 
ful. These boards of conciliation do not, how- 
ever, possess the power to act finally for either 
the laborer or the employer; they can only 
render assistance in adjusting and pacifying the 
parties who are in dispute. But suppose that 
conciliation fails. Is there no other solution of 
this most vital problem ? 

{d) Arbitratio7i ; Wages. — In case the par- 
ties in conflict cannot be conciliated among 
themselves and through boards of conciliation, 
the points in dispute may be presented to an 
arbitration board which represents both parties. 
The purpose of this board, as that of the con- 
ciliation boards, is to adjust and compromise 
matters and consequently to prevent such an in- 
dustrial disturbance as a boycott or a strike. 

The success of this arbitration depends, of 
necessity, upon the willingness of both parties to 
accept the decisions of the board. Voluntary 
arbitration, or that which is left to the discretion 
of both parties, has so often failed as to cast 
much discredit upon it. Shall we have com- 
pulsory arbitration.? The chief reasons which 
have been assigned in favor of compulsory arbi- 
tration are that the problems to be solved are 
most important and vital and that their solution 



266 PRINCIPLES OF WEALTH AND WELFARE 

by the parties In dispute has for the most part 
been a signal failure. The laborer and the em- 
ployer unquestionably have so far failed in their 
attempts to solve this aggravating and over- 
whelming problem. And whether these parties 
may ever work out a solution which will in the 
main be satisfactory, or whether the state can 
most easily and efficiently solve this problem, is 
a highly debatable proposition. Arbitration de- 
cisions by the state would of course be binding 
upon both parties, while those made by the par- 
ties themselves will always be voluntary. That 
the state shall put an end to a fight between 
two individuals, that the state shall, by means 
of its police, courts, and army, keep the peace 
and order of the whole community, has long 
been recognized as the proper function of the 
state. Why should the state not also compel 
two parties, laborers and employers, who are 
waging a great and disastrous economic war to 
come to terms of peace ? 

(c) Legal Incorporation of the Unions and 
Suits for Damage, — Boards of voluntary con- 
ciliation and arbitration have indeed accom- 
plished something. Compulsory conciliation 
and arbitration, in a few of the Australian states, 
have likewise achieved more or less of success. 
That the American state will put into opera- 
tion a system of compulsory arbitration, we do 



WAGES : TRADES UNIONS AND FACTORY ACTS 267 

not expect, at least within the near future. But 
though our government may never attempt to 
put an end to great industrial wars by means 
of compulsory arbitration, it may soon require 
that unions of laborers incorporate themselves 
according to law, and that they act according to 
such legal rights as the state sees fit to grant to 
them. The state has the right to require or- 
ganizations of business managers to incorporate 
and thereby become legal bodies. Why may it 
not make the same requirement of trade or la- 
bor organizations? This would give the unions 
the legal power to bring suit against employers 
for breach of contract or for damages. It 
would also give them a position of much greater 
respect and dignity. And such a legal require- 
ment would give to the employer, to the other 
laborers, and to the public, an instrument which 
could be used with great effect against the 
unions for the acts of violence and destruction 
which their members commit. There would 
then be no question whatever about the right of 
injured persons to bring suit against the union's 
reserve funds. Legal incorporation would, there- 
fore, compel the managers to exercise greater 
discretion in their own acts and also greater con- 
trol over the individual members of their unions. 
Such a requirement would, however, greatly di- 
minish the power of the union. When its funds 



268 PRINCIPLES OF WEALTH AND WELFARE 

have been taken by the courts to pay damages, 
one of its greatest means of power and influence 
has been taken from the union. Without such 
a reserve fund the laborers could scarcely afford 
to go on a strike. 

Such a requirement by the state has, how- 
ever, not yet been made. Is there now no legal 
means whereby those who suffer from the more 
violent acts of the unionists may have redress? 
Until very recent years it has been assumed 
by the courts of England and of the United 
States that, unless the union is incorporated 
by law, no suits for damages can be brought 
against it. But such an assumption has now 
been set aside. It was in 1901 that the highest 
court of England declared, in the now famous 
decision known as the Taff Vale case, that, 
though the union is not incorporated by a char- 
ter from the state, it is nevertheless liable in 
damages for the acts of its agents. The effect 
of such a decision has been great. Courts else- 
where are now accepting the principle of the 
English decision and are granting damages 
against unions. And the result may finally 
be that unions will voluntarily ask for a legal 
incorporation. 

General Results of Trades Unions; Wages. — 
We have now considered the trades unions 
from the point of view of their causes, aims, 



WAGES : TRADES UNIONS AND FACTORY ACTS 269 

and purposes, from the point of view of their 
methods in time of peace and war, from the 
point of view of the great and profound indus- 
trial struggle which they have precipitated, and 
finally from the point of view of the settlement 
of this vital conflict. What are some of the re- 
sults which have accrued from all of this work, 
agitation, and struggle ? Let us make an exami- 
nation of the life and experiences of the unions. 
And we find that this life, though it has spent 
much of its force in fierce conflict and bitter 
feeling, reveals itself as possessed of many strong 
and admirable points. The historical testimony 
is most strongly to the effect that trade or labor 
unions, in spite of their abuses, have brought 
good into the world. It declares to us in un- 
mistakable evidence that they have elevated the 
position and improved the productive power of 
the laborer, and that they have raised the gen- 
eral standard of wages and conditions of work, 
not only for their own members but also for 
non-union laborers. And the testimony which 
was taken by the United States Industrial Com- 
mission, 1 898- 1 900, is overwhelmingly to the 
point that the economic conditions of the union 
members have been greatly improved as a result 
of the unions, in spite of the fact that their meth- 
ods and practices have at times been violent and 
ethically unsound. U nions have made it possible 



270 PRINCIPLES OF WEALTH AND WELFARE 

for the laborers to work shorter hours and re- 
ceive higher wages, and have thereby added to 
their productive power and welfare. While they 
have in times of their wars brought great loss 
and disturbance to themselves and to the whole 
society in which they put forth their activity, 
while they have created bitter and hostile feel- 
ings and at times displayed intense selfishness, 
the unions have not upon the whole failed 
in their mission and work. They have caused 
many a selfish employer to deal with his labor- 
ers in a more honest way ; they have compelled 
him to pay in wages for the value which labor 
produces for him. Their economic results have, 
therefore, for the most part been for the wealth 
and welfare of the toilers of ordinary talent. 
And their work for this class of laborers, though 
it has oftentimes been wrought in injustice and 
in wrath, has not by any means wholly failed. 
The common toiler has received benefit, and in 
consequence the whole economic world has 
been improved. 

Factory Acts and Wages. — We have already 
said that labor, in consequence of its peculiari- 
ties as a commodity to be bought and sold, is 
oftentimes placed in a position of disadvantage. 
The employer of labor, rather than the common 
laborer, has the position of advantage on the 
labor market, and not infrequently does this 



WAGES : TRADES UNIONS AND FACTORY ACTS 2/1 

employer make use of his advantageous position 
to drive a hard bargain with his laborers. This 
selfish conduct on the part of the employer has, 
as we have said, had much to do in bringing the 
union of laborers into existence and in creating 
in this union an attitude of hostility. This self- 
ish tendency on the part of the employer has 
also had much influence in the creation of a 
great body of economic laws called the factory 
acts. The state has been compelled to protect 
the weak and ignorant laborer, especially the 
child and the woman, from the greed of the em- 
ployer. These factory acts belong to the modern 
period. They belong to the time when the em- 
ployer uses many laborers and works them in fac- 
tories and mills. Though a modern institution of 
only a century in age, the factory act to-day pre- 
vails over an area larger than that covered by the 
public policeman. It is almost coextensive with 
the system of education maintained by the state. 
And though a new institution, the factory act is 
truly one of the world's greatest achievements. 
It has profoundly influenced the productive 
power of labor and has added to the world s 
wealth and welfare. 

Children and Women in Factories and Mills. — 
The factory act provides protection, by the state, 
to the children and women who toil in factories 
and workshops. The state affords protection 



272 PRINCIPLES OF WEALTH AND WELFARE 

to those who are not able to protect themselves 
against the demands of the employers, and 
to those who have not the foresight to save 
their little strength and energy for future and 
greater uses. Modern legislation in reference 
to the hours of work for adults, and in reference 
to wages for all kinds and classes of laborers 
has been exceedingly slight. But legislation in 
reference to the hours of work of the women 
and children who toil in factories has, on the 
other hand, been very extensive and complex. 
This legislation looks toward the promotion of 
the health and strength of the child. It will 
not permit the manufacturer to employ the 
child of from twelve to eighteen years of age 
for long hours or under unwholesome or dan- 
gerous conditions. It will not allow the child 
under twelve years of age to work at all in such 
a place. The state thus protects the child 
until his strength and energy have become 
great enough for him to protect himself, and 
this protection on the part of the state is abso- 
lutely necessary. That people which permits 
the health and energy of its children to be 
sapped is truly destroying itself. That people 
which causes or allows its children to toil 
during their early years, perhaps under fourteen 
years of age, when their sole purpose should 
be to build up strong and vigorous bodies and 



WAGES : TRADES UNIONS AND FACTORY ACTS 273 

intelligent brains, makes a vital thrust at its own 
life and deprives itself of much productive power 
and general welfare. 

This legislation looks also to the protection 
of the woman who toils in the factories and 
mills. It does not permit her to work for long 
hours and under unwholesome conditions. It 
does not permit her to work at all during 
two weeks before childbirth and for a month 
afterwards. And when the state protects the 
women who toil in the factories and mills, it is 
promoting the health and strength of both 
present and future generations, and is thereby- 
adding to its productive power and to its general 
welfare. 

It is England which has taken the world's 
lead in all of this legislation, and for her its 
results have been marvelously great. Since 
i860, as the American states have become more 
and more of the manufacturing type, the factory 
act of England has been adopted and put into 
operation by us. Some of our states have 
been slow to make such a move, and the 
factory owner has oftentimes shown great hos- 
tility to such legislation, but the movement is 
unquestionably going forward. Within a few 
more years every American state, in which 
is located a factory, will certainly enact such 
laws. 



2/4 PRINCIPLES OF WEALTH AND WELFARE 

QUESTIONS 

(i) Do you think that trades unions benefit the laborer 
and the public? 

(2) Would you boycott your merchant? 

(3) Would you go on a strike ? 

(4) Can boycotts and strikes be avoided? By what 
means? 

(5) Do you think that a child of twelve years of age 
should be allowed by the state to work in a factory or mill ? 



CHAPTER IV 

DISTRIBUTION OF WEALTH AND RENT 

Rent regulated by the Inherent Power of Land 
at work under its Conditions of Supply and Demand. 

— We have already considered the part which 
land plays in the production of wealth. But what 
of land in the distribution of wealth ? What of 
rent ? According to our standard of distribu- 
tion, rent is the earning of the inherent produc- 
tive power of land at work under the conditions 
of the supply of land as compared with the de- 
mand for it. Land, as we understand it as a 
producing agent, should be considered as an or- 
dinary product or commodity, which is bought 
and sold. It sells for a price just as does labor, 
raw cotton, or railway service; and the price of 
any of these commodities depends not only upon 
its inherent properties but also upon the demand 
for it. The business manager must pay a price 
for the use of land, as well as for the use of labor 
or capital. The fact that he himself at times 
owns the land which he uses does not at all 

275 



2/6 PRINCIPLES OF WEALTH AND WELFARE 

eliminate the price which he pays for its use. 
He may also own his labor or his capital, but in 
either case he must pay a price for their 
services. 

Productive Powers of Land ; how Estimated. — 
And the productive power of this agent is cal- 
culated, as is the value of any ordinary commod- 
ity or that of labor, on the margin. The em- 
ployer of land experiments with a unit of it, say 
an acre or so many square feet, for various uses. 
He also experiments with several units of it for 
the very same use. By means of these experi- 
ments he can estimate with a fair degree of ac- 
curacy the power which land possesses to pro- 
duce utilities. Every acre of land has some 
utilities, possesses some productive power for 
any and all uses, unless it exists in such great 
abundance that there is no demand whatever 
for it and that no effort has to be put forth in 
order to obtain it. For one use it may produce 
utilities or values which are equal to, let us say, 
lOO cents, while for other uses it may produce 
utilities equal to 99 or loi cents. And the 
business manager will as a rule employ the 
unit of his land, as he does the unit of his labor 
or capital, for that use in which it has the great- 
est possible productive power or the greatest 
earning capacity. He will use it in that field 
of production in which it will bring him loi 



DISTRIBUTION OF WEALTH AND RENT 277 

cents,- rather than in the field in which it will 
earn only 99 or 100 cents. 

Efficiency of Land and Rent. — The productive 
power of land, therefore, depends largely upon 
(i) the uses which are made of it. But the uses 
for which it is employed are in turn largely 
dependent upon (2) its inherent properties, or 
upon (3) its situation in the economic society. 
Land may be employed for agricultural, mining, 
building, or transportation uses. For the most 
part, it is employed in that field of production 
in which it has the greatest productive power 
and earns the maximum of rent. 

We have already seen, under the head of 
land as a producing agent, that its inherent 
productive properties for agricultural purposes 
are those of its various chemical compounds 
and agents, of its mechanical conditions of 
looseness, and of its heat, light, and moisture. 
But the chemical and mechanical properties 
are the resultant of both nature and man. 
To some units of land it is nature which has 
contributed most of these properties, while in 
other units man by the process of fertilizing 
and tillage has added much. The earning 
power of these units depends not only upon 
what nature and man have together given to 
the soil, but also upon the kind of crop which 
is planted upon it. To sow wheat upon a soil 



2/8 PRINCIPLES OF WEALTH AND WELFARE 

which possesses in great abundance the prop- 
erties required for cotton culture, is to make a 
non-economical use of the inherent properties 
of the soil, and the rent is necessarily small. 
For such a use this soil possesses no great 
productive power. To plant this soil in cotton 
causes it, on the other hand, to bring forth 
products of much greater value. For agricul- 
tural uses the earnings of units of land are, 
therefore, largely regulated by their efficiency 
or by their inherent productive properties. 

Lands may be used f6r mining instead of 
tillage, but the rent of this use is largely 
regulated by the productive power of the min- 
eral deposits. And this power is the resultant 
of their inherent properties and of their supply 
as compared with the demand for them. The 
rent of the land used for building or trans- 
portation purposes is likewise fundamentally 
regulated by its productive power, but its pro- 
ductive properties for these uses consist solely 
of its situation and space extension. 

In land for all the uses which are made of it, and 
especially for building and transportation pur- 
poses, situation is a very important element ; and 
its productive power is, therefore, greatly influ- 
enced by this element. To this element of pro- 
ductivity nature adds but little, and man as an 
individual also adds but little. This situation 



DISTRIBUTION OF WEALTH AND RENT 279 

property of land is for the most part created by 
many individuals collecting together in their eco- 
nomic activity. Let us illustrate this point. A 
small lot of ground in New York City earns in 
annual rent $10,000. A lot, of exactly the same 
size and possessed of exactly the same inherent 
qualities, located in the rural sections of the South 
or West earns in annual rent but $10. In these 
two cases, and they are by no means exceptional, 
the earning power is wholly dependent upon 
the situation. The great productive power of the 
land in the first illustration is largely due to the 
fact that the American people have made a few 
square miles on Manhattan Island the center of 
all their economic life. While nature has given to 
these few acres a position of great geographical 
and economic advantage, it is the American 
people in their economic dealings with each other, 
and with those of Europe, who are the real cre- 
ators of this wonderful productive power. To the 
same number of acres located in middle North 
Carolina, nature has given no position of advan- 
tage whatever, and the American economic activ- 
ity has given no great crowds of men and women. 
The extraordinarily great rent in one place and 
the very small rent in the other are, however, both 
fundamentally regulated by the same law. They 
are regulated by the law of the productive power 
of land. The use of the acre which is located in 



280 PRINCIPLES OF WEALTH AND WELFARE 

New York City is worth in commercial value 
one thousand times as much as is the use of the 
acre in North Carolina. 

Supply of Land and Rent. — We have already said 
that the productive power of land, as that of all 
the other agents of production, depends not only 
upon its own inherent properties but also upon 
its supply as compared with the demand for it. 
Properties which exist in such great abundance 
that no effort need be put forth in order to obtain 
them have, as we have said, no value whatever. 
They are not utilities in an economic sense, and 
consequently do not exchange between man and 
man ; they are so abundant as to be common to 
all. For such properties no price is offered and 
none is demanded. In an economic sense they 
possess no productive power. But such proper- 
ties do not now belong to land or to any of the 
other agents of production. 

The supply of land is, therefore, an element in 
its productive power and in the earnings of this 
power. The supply of land, as well as its in- 
herent properties, regulates rent or the price 
at which the use of land sells, and in the same gen- 
eral way as the supply of labor and capital regu- 
lates wages and interest. The $10,000 annual 
rent of a small unit of land located in New York 
City is largely due to the scarcity of land on Man- 
hattan Island, and especially to the scarcity of 



DISTRIBUTION OF WEALTH AND RENT 28 1 

land in a certain spot, say on lower Broadway. 
The supply of such lots is exceedingly small as 
compared with the demand which millions of 
people create for it. The four millions of people 
who live in Greater New York City have much 
to do in creating this great productive power in 
the land, but their number is small when com- 
pared with the many millions throughout the 
American continent and the other continents of 
the world who look to New York as the center 
of their economic life. The man in South Africa 
who buys American products indirectly creates 
something of a demand for these few acres of 
New York lands. The California or Florida 
fruit grower indirectly creates more of a demand ; 
he sends his fruits to New York for distribution 
to many parts of fhe United States and for foreign 
sale. Every soul who sells or buys goods through 
New York City, directly or indirectly, — and 
most Americans and many foreigners do, — adds 
to the demand for the lands of Manhattan Island. 
And in the rent of the lot which is located 
hundreds of miles from New York City, where 
the annual rent is but $10, the supply of land as 
compared with the demand for it also plays a 
great part. This rent, as well as the ^10,000 
rent, is the result of the inherent properties of the 
land and the demand for it. In creating the prop- 
erties which earn, in the shape of rent, only $10, 



282 PRINCIPLES OF WEALTH AND WELFARE 

society has done but little. But in creating the 
powers which earn ^10,000, society has done very 
much. All productive power, as we have seen, 
is the product of the individual man, of nature 
and her forces, and of the larger body of individ- 
uals which we call society. And land, in reference 
to the source of its productive power, is not 
different from labor, capital, or business man- 
agement ; nor is it essentially different from all 
the ordinary commodities. They are all funda- 
mentally given their productive power and value 
by virtue of the number of people who have 
wants and demands for them. 

There is, however, one point in which rent 
differs from wages, interest, or the pay of busi- 
ness management. We have seen that with the 
growth of population wages tend to decrease, 
unless the growth of labor is attended by an 
equal or greater growth in the demand for it, and 
at least a corresponding growth in wealth. This 
same tendency is equally true in interest. As 
capital increases, its earnings or productive 
power per dollar decrease, unless there is at the 
same time an equally great increase in the de- 
mand for it. This same tendency is also true of 
the pay of business management. But while the 
other agents tend to diminish per unit in their 
productive power and earnings as economic life 
goes upward and onward, land tends to increase 



DISTRIBUTION OF WEALTH AND RENT 283 

in its productive power and its rent as population, 
capital, and business management increase. 
Rent is now in the main much higher per unit of 
land than it was for the same land twenty-five 
years ago. And this is true not only in our own 
country, but also among every other progressive 
people. The supply of land is becoming more 
and more limited, while that of the other agents 
is becoming greater and greater ; and this ten- 
dency has a profound influence upon rent, wages, 
interest, and the pay of business management. 
"Single Tax" Doctrine and Rent. — This ten- 
dency of land to increase in its productive power 
and its rent, in consequence of the growth of 
population and economic activity, has called 
forth a great amount of discussion of the rent 
problem. It has also been the chief cause of 
the foundation of a very famous and influential 
doctrine of taxation — " single tax." This 
" single tax " doctrine has meant slightly dif- 
ferent things at different times. As we use it, 
it means that there should be but one tax, and 
that levied on the so-called "unearned increment" 
in the value of land. It is claimed that the in- 
crease in the productive power and rent of land 
is due very largely to society, not to the indi- 
vidual's activity and effort ; and that this in- 
crease, which is called the " unearned increment " 
of value, belongs to the whole society, not to 



284 PRINCIPLES OF WEALTH AND WELFARE 

the individual. Such a claim is in part cor- 
rect, but the same claim should likewise be 
made in reference to the earnings of any other 
agent or to the price of any other commodity. 
As we have already seen, production along 
any line is largely a process in which the 
whole economic society is involved. The in- 
dividual produces only a part of the value 
which exists in every conceivable form of goods ; 
society produces a part of the value which each 
of these forms possesses. There is, therefore, in 
reality a so-called " unearned increment " in every 
value. There is an "unearned increment" in 
rent, wages, interest, and the pay of business 
management, in the price of cotton, corn, and 
electric or gas services, and in the price of any 
other commodity. The amount of this increase 
of value which society produces varies greatly. 
It depends largely upon the special field of pro- 
duction and also upon its situation. And the 
individual is justly entitled to only a part of 
these increases in values ; the collective body 
which we call society is entitled to a part of 
them. Both the individual and the society are 
their producers. It follows, therefore, that soci- 
ety has no moral or economic right to take in 
taxes or in other shapes the increase which it has 
made in land values, unless it also takes the in- 
crease which it has made in all other values. 



DISTRIBUTION OF WEALTH AND RENT 285 

Socialism and Rent. — While the "single tax" 
and other reformers would take for the state the 
entire increment which society adds to land 
values, the socialist demands that the state be- 
come the sole owner of all the land and the capital. 
Such a scheme of production we have already 
considered from the point of view of its produc- 
tive power; and, if it should ever be realized, the 
problems of rent and interest would entirely dis- 
appear. The socialist does not believe in rent 
and interest, because he does not believe in 
the justice of the private ownership of land and 
capital. To his mind individual ownership of 
these agents of production is thoroughly un- 
sound, for the individual does not and cannot 
create these values. Society should own these 
agents or instruments of production because 
society creates their values. To his mind they 
are instruments of oppression, rather than in- 
struments of production, when legally owned by 
individuals. 

QUESTIONS 

(i) One acre of land rents for ^10. Another acre rents 
for ^5000. What factors account for the difference? 
(2) Upon what does the rental value of land depend? 



CHAPTER V 

DISTRIBUTION OF WEALTH AND INTEREST 

Interest the Earning of Capital. — The source 
of interest, as that of wages and rent, is in the 
power of an agent to produce wealth. The 
productive power of labor is the chief source of 
wages, and that of land the chief source of rent. 
The source of interest is likewise in the capacity 
of capital to produce utilities or values. A part 
of every product of production, therefore, be- 
longs to wages, a part to rent, a part to interest, 
and finally a part to the pay of business man- 
agement. 

Interest regulated by the Inherent Power of 
Capital at work under its Conditions of Supply and 
Demand. — Capital when borrowed by the em- 
ployer is paid interest according to contract, 
and in this respect it is like labor and land. 
But what ultimately regulates the rate of this 
interest ? What regulates the interest of capital, 
whether its use is hired by an employer or 
whether its use is employed by the owner ? 
According to our standard of distribution, the 
use of capital is paid for according to its pro- 

286 



DISTRIBUTION OF WEALTH AND INTEREST 287 

ductive power, just as is the use of labor or 
land. And the employer or owner of capital, by 
experimentation and calculation, can estimate 
with a fair degree of accuracy this productive 
power. He can find out how much a certain 
unit of capital, say ^loo, can produce in a 
year's time when it is embodied in various 
tools, instruments, and forms. The business 
world, therefore, knows in the main what the 
productive power of capital is ; and this power 
becomes the general standard of its pay or inter- 
est. This productive power depends, of course, 
upon the form of production in which the capital 
is employed, upon its inherent properties, and 
also upon the supply of capital as compared 
with the demand for it. Capital is, therefore, a 
commodity, the use of which is bought and 
sold on the market for a price. And its price 
depends upon the properties of its form and 
upon their supply and demand. 

Efficiency of Capital and Interest. — It follows, 
therefore, that there exists a very close and vital 
relation between the efficiency of capital and 
interest. The most important source of in- 
terest is the inherent power of capital. But 
this inherent power of capital, and interest, 
are, as we have already said, profoundly influ- 
enced by the supply of the capital which exists 
in each group of production as compared with 



2S8 PRINCIPLES OF WEALTH AND WELFARE 

the demand for capital in that very group. 
During one season the capital which is invested 
in cotton culture may earn 8 per cent interest, 
while during another season it may not earn 
more than 6 per cent. At one time capital 
produces more values when invested in farming 
lands, at another time in city lands and houses, 
at another time in manufacturing of one type or 
another, at another time in mining, and at still 
another time in railway or steamship transpor- 
tation. 

Supply of Capital and Interest. — The market 
rate of interest is, therefore, due in part to the 
supply of capital, as well as to the inherent 
productive properties of the special forms into 
which capital is embodied. Capital can to-day 
be borrowed in New York City at 4 per cent 
interest, while in many parts of the West and 
South its present market rate is 6 per cent. 
Why this difference in market rate } In New 
York capital is abundant as compared with the 
other agents of production. Its supply is very 
large as compared with the demand for it, and 
its productive power per unit, per $100, is con- 
sequently smaller. In the South or West the 
other agents of production are relatively more 
abundant than capital. There capital is small 
in supply as compared with the demand for 
it, and in consequence its productive power 



DISTRIBUTION OF WEALTH AND INTEREST 289 

is greater. But the difference in supply and 
productive power does not explain all of the 
difference which exists in the market rate. This 
does not entirely explain a difference of 2 per 

cent. 

Security of Economic Conditions and Interest. — 

In the loaning of the use of capital, or in the sell- 
ing of its productive power, there is more or less 
of risk. To be sure, it is usually loaned under 
the ordinary safeguards, but these are not abso- 
lutely secure. In investing capital in certain 
fields of production and in certain locations, there 
are great risks. The enterprise may succeed and 
pay a high rate of interest. It may fail, and the 
investor may lose not only his interest but also a 
part, if not all, of his principal. An equal quan- 
tity of capital at work under the same conditions 
of supply and demand tends to produce exactly 
the same interest, and the market rate always 
tends under such conditions to be the same, 
provided the conditions of economic security are 
equal. The difference in a market rate of 4 per 
cent in New York City and that of 6 per cent in 
Tennessee is in part due to the differelice which 
exists in the conditions of the demand and supply 
of the capital in the two places, and also in part to 
the fact that economic life is more secure in New 
York City than it is in Tennessee. Let us con- 
sider another illustration. During periods in 



290 PRINCIPLES OF WEALTH AND WELFARE 

the middle ages capital was loaned for as much 
as 40 per cent interest. This enormous rate was 
charged partly because of the scarcity of capital, 
but to a laro-e extent because of the chaotic con- 
ditions of economic life. In many cases neither 
interest nor principal was ever paid. 

Legislation and Interest. — We have seen that 
the state, by means of a great body of economic 
legislation called the factory acts, has to an extent 
indirectly influenced wages. It has also at times 
attempted in a direct way to regulate the rate of 
wages, but such attempts have for the most part 
failed. For wages, as for the prices of all other 
services or goods, the great forces of demand and 
supply, of consumption and production, are the 
real regulators. Because of these fundamental 
economic forces, wages change too often for the 
state to accomplish much in their regulation. 
And for the most part the modern state allows 
the distribution of wealth into wages, rent, and 
the pay of business management to work itself 
out without restrictions. But in the distribu- 
tion of wealth into interest many of our states 
take a greater or less part. In many of the states 
we have a maximum legal rate of interest, from 5 
per cent to 6 per cent, in the case of money loans. 
Over rates on loans below the one established by 
law the state has, of course, no influence. It like- 
wise makes no attempts to regulate the earnings 



DISTRIBUTION OF WEALTH AND INTEREST 29I 

of the capital which is invested in the various 
forms of production. One hundred per cent may 
be received from such an investment, and the 
state offers no objection whatever. But for an 
individual or a corporation to loan capital in the 
form of money at a rate which is greater than the 
one established by law, is for that person or cor- 
poration to commit an illegal act. 

This method of state regulation of the rate of 
interest on money loaned has long been in opera- 
tion, but it has exercised in the main very little 
influence upon the market rate of interest. The 
reason of such legislation is likewise very old. 
Capital in the form of money has always been 
loaned in part to the poor and the unfortunate. 
And the state, in establishing a maximum rate at 
which it can be loaned, is attempting to protect 
such individuals from the greedy demands of 
money lenders. In so doing the state is render- 
ing society a service, though by such an act it 
does not seriously affect the market rate of inter- 
est. Interest, like the prices of all other com- 
modities, is in the main regulated by mighty 
economic forces, over which such a legal rate has 
comparatively slight influence. The inherent 
power of capital, under the conditions of its de- 
mand and supply, is the great and fundamental 
regulator of interest. The state may protect the 
unfortunate from paying on money loans a rate 



292 PRINCIPLES OF WEALTH AND WELFARE 

which is higher than the market rate of interest, 
but it cannot by any method whatever really 
regulate this market rate. 

Socialism and Interest. — As we have already 
said, there is no problem of interest under a 
socialistic regime, for capital as a producing 
agent all belongs to the socialistic state, and the 
individual has its use without cost. Under such 
a system capital would, however, play a very 
important part in the production of wealth. It 
would enable the individual to produce more 
products than he could possibly produce by 
means of his own energy alone. But in the 
distribution of these products all would go to 
the individual except that which would be 
necessary to replace the wear and tear of capital. 
Under such a system capital as a producing 
agent would play a great part, but capital as an 
earner of interest for the owner of it would 
entirely disappear. 

QUESTIONS 

(i) Do you think it right to demand and receive inter- 
est on your capital ? 

(2) Money is loaned in New York City at 4 per cent, 
and in North Carolina at 6 per cent. Why the difference ? 

(3) What is it that fundamentally regulates the rate of 
interest ? 

(4) Do you think that the state should fix a maximum 
rate of interest, say 6 per cent? 



CHAPTER VI 

DISTRIBUTION OF WEALTH : PAY OF BUSINESS 
MANAGEMENT AND PROFITS 

A, Management a7id its Pay 

Pay of Management: the Earning of Manage- 
ment. — The great productive power which busi- 
ness management possesses, we have already 
considered under the head of production. We 
have seen that, without this agent in some form 
or other, there can be Httle or no production. 
With it and the other agents there can be pro- 
duction upon a very great scale. In every one 
of the almost countless products there is, there- 
fore, a part which has been produced by this 
agent, and there are also parts which have been 
produced by labor, land, and capital. A part of 
every price, then, as justly belongs to manage- 
ment, as do the other parts belong to the other 
agents of production. The pay of management, 
just as the pay of all the other agents, should be 
according to its productive power. And the 
productive power of this agent can be calculated 
and estimated by the business world just as 
accurately as can that of any of the other agents. 

293 



294 PRINCIPLES OF WEALXH AND WELFARE 

Pay of Management regulated by its Inherent 
Power at work under its Conditions of Supply and 
Demand. — The price at which business manage- 
ment sells on the market depends both upon its 
inherent properties and also upon its supply as 
compared with the demand for it. Manage- 
ment, then, like all the other agents and other 
commodities, sells because of its inherent value 
and because of the prevailing conditions of its 
market. 

Efficiency of Management and Pay of Manage- 
ment. — But of the forces which regulate the 
earnings of management, its own inherent pro- 
ductive properties are certainly the most impor- 
tant, though the conditions under which it sells 
have much influence upon its price; the condi- 
tions under which it works have much to do with 
the product which it makes. Managing ability, 
as well as the other agents, is divided into almost 
countless fields, groups, and subgroups of work. 
Let us consider the earnings of management in 
some of these groups. In one group manage- 
ment is paid per unit, per man let us say, the 
annual amount of ^looo, while in another 
group it is paid $75,000 for its earnings. Such 
great difference in the pay of management is 
popularly supposed to be unfair and unjust. In 
the minds of many people no one man by his 
managing ability can within a year produce a 



MANAGEMENT AND ITS PAY 295 

product which sells on the market for at least 
$75,000. But this product, as we have said, can 
be estimated and calculated wdth considerable 
accuracy, and the salary paid to the business 
manager is in the main regulated by the amount 
and quality of that product which he makes. 
There are, to be sure, business managers who 
do not and cannot earn within a year this enor- 
mous amount of wealth, and who are still paid 
this great salary, but they are exceedingly few. 
While there are exceptions to the general ten- 
dency, still the pay of business management is 
for the most part regulated by its efficiency. 
While there are, indeed, many men who cannot 
by their management produce an annual prod- 
uct which sells for more than $100, there are 
others who can produce an annual product 
valued on the market at $1000, $10,000, $50,000, 
or even $75,000. 

But the efficiency of management depends 
largely upon the special group of production and 
upon the extent of its work. During the times 
when business organizations were exceedingly 
small, when no organization carried on an annual 
business amounting to more than a few thou- 
sand dollars, it was impossible for the manager 
to produce a product of such great value. His 
task was then small as compared with what 
it often is to-day. He now assumes the 



296 PRINCIPLES OF WEALTH AND WELFARE 

responsibility of managing interests and agents 
whose annual product amounts to millions and 
millions of dollars. In the past his interests did 
not extend beyond the bounds of a single city 
or state. To-day the manager must look after 
interests which cover every corner of a great 
country and to an extent the whole world. He 
must manage a great amount of labor, land, and 
capital, as well as the demands of millions of 
consumers. The productive power of manage- 
ment is, therefore, the regulator of its pay. But 
this productive power depends upon its supply, 
as well as upon its inherent properties. 

Supply of Management and Pay of Manage- 
ment. — We pay the enormous annual salary of 
^75,000, not only because of the great inherent 
power of the individual manager, but also be- 
cause the individuals who possess the inher- 
ent qualities necessary for such management 
are exceedingly few. The $1000 manager is 
likewise under the conditions of supply as com- 
pared with demand. In the case of the $75,000 
manager there is a relative scarcity, while in 
the case of the $1000 manager the supply is 
relatively great. For each field, group, or sub- 
group of business organization and manage- 
ment there is a supply of this ability. For the 
lower groups and subgroups the supply of man- 
aging ability is, as a rule, large as compared 



MANAGEMENT AND ITS PAY 297 

with the demand for it, and the price is conse- 
quently small. But for the higher groups and 
subgroups the supply of managing ability is 
small, and the price is, therefore, great. 

To manage the greatest of our manufacturing 
and transportation corporations, requires not 
only great talent but also extraordinary talent. 
To manage these great industrial organizations, 
with their complex interests extending through- 
out our great continent and to the uttermost 
parts of the globe, requires talent as great as 
was required of a Napoleon, a Washington, a 
Lincoln, a Lee, or a Grant. And that such tal- 
ent does not exist in great abundance needs no 
detailed proof. The world knows it, and it has 
learned this truth through bitter experience. The 
man who possesses great powers of leadership, 
whether they be along the line of government, 
war, religion, education, or the industries, lives 
nowhere in great numbers. As economic civil- 
ization goes upward and onward, we may expect 
to see an increase in the quantity of this ex- 
traordinary talent, but we shall also see a great 
increase in the demand for it. 

B, Manageme7it a^id Profits 

Profits or Losses, Reasons for. — We have seen, 
under the head of Section III, that in many 
prices there is an element of profits, as well as 



298 PRINCIPLES OF WEALTH AND WELFARE 

wages, rent, interest, and the pay of business 
management. Management, as we know, is the 
agent to which these profits go in the first case. 
But it is this very agent which assumes the risks 
and responsibility of supplying the demand for 
certain products. This demand, as we have al- 
ready seen, is not an absolutely definite quantity, 
and the manager may produce too much or too 
little of the products. The manager must also 
pay wages, rent, and interest to the other agents; 
and these, just as the prices of all the ordi- 
nary commodities, fluctuate in amount. The 
cost of producing any unit of goods, let us say 
a yard of a certain grade of cotton fabric, can 
never be exactly estimated. It may be more 
than the manager's estimate. It may be less. 
The price at which the manager can afford to 
sell his products to the consumer cannot, there- 
fore, be exactly calculated. Nor can the mana- 
ger calculate the exact price which the con- 
sumer will be willing to pay. It is he who must 
bear, in the first instance, the loss, in case he is 
compelled to sell his products at a price which 
is smaller than their cost of production. It is he 
who likewise receives, in the first instance, the 
profits, if his products sell for a price which is 
greater than their cost of production. 

The Manager bears in Part the Losses and 
receives in Part the Profits. — The business man- 



MANAGEMENT AND PROFITS 299 

ager is fairly entitled to all of the earnings of 
his management, to all of its specific products. 
Likewise labor, land, and capital are entitled 
to their specific products. If the manager is 
compelled by the conditions of the demand and 
supply of his products to sell them at a price 
which is lower than their cost, he has the per- 
fect economic and moral right to shift a part of 
this loss to the other agents. But he has, as a 
rule, contracted with these agents for a certain 
price, and consequently he must pay their part, 
whether he sells his products above or below 
cost. The manager will not, however, produce 
more products, unless he can sell them for a 
higher price, or unless he can secure the services 
of the other agents at a lower price. He will, 
therefore, shift more or less of the loss to the 
other agents. 

What of the profits which come to him ? 
According to our standard of distribution, the 
manager is entitled to his own earnings. He 
is also entitled to all the cost of the insurance of 
his goods against loss or destruction. Can 
he keep the profits to himself alone ? Can he 
keep all of the price which is left after he pays 
wages, rent, and interest, according to his con- 
tract, and after he pays himself for his own pro- 
ductive power, as well as for all the many risks 
which he assumes ? We believe that the 



300 



PRINCIPLES OF WEALTH AND WELFARE 



business manager has no right to all of these 
profits. A part of them belongs to the other 
agents which help to produce his goods, and a 
part to the consumer of his goods. But can the 
manager keep all these profits to himself, in spite 
of the fact that they do not rightly belong to him } 
In case he should retire from business at once 
after receiving these profits he could indeed 
keep to himself alone all of these profits. But 
the business manager after making profits, above 
paying himself for his managing ability as well 
as all of his risks, usually does not retire from 
business. In fact he is driven on to greater 
activity and effort, in order to make still greater 
profits. It is the manager who fails to make 
profits that is willing to retire. And this very 
desire to make more profits causes the manager 
to divide a part of his profits with the con- 
sumer. He sells him goods at a lower price, in 
order to sell him goods in greater quantities. 
This desire for greater profits also causes the 
manager to pay higher wages, rent, and interest. 
He must do this, in order to have the use of 
greater quantities of the other agents, and in 
order to produce more goods. The average busi- 
ness manager is, therefore, compelled by his very 
desire for more wealth to divide a part of his 
profits among others. He may, and does at 
times, distribute only a small part of his profits 



MONOPOLY MANAGEMENT 301 

to the other agents and to the consumer. He 
may, and does at times, use his position of ad- 
vantage to pay the other agents, especially 
ordinary labor, less than they produce. The 
manager may also at times compel the con- 
sumer to pay a price which is greater than the 
normal value of the goods. 

C Monopoly Management; its Pay and Profits 

Monopoly Management as a Producer. — Un- 
der Section II, we have considered the monopo- 
list as a producer of wealth. We have seen that, 
in the production of certain manufactured goods 
and of transportation services, the great corpo- 
ration, which is possessed of practical monopoly 
powers and privileges, is a powerful producing 
agent. Such a corporation is also a mighty fac- 
tor in the distribution of wealth. The s^reater 
and more powerful management is as a produc- 
ing agent, the greater and more powerful is this 
factor in the distribution of wealth into wages, 
rent, interest, pay of management, and profits. 
Likewise the greater the organization of man- 
agement, the greater is its influence over the 
prices which the consumer pays. 

Large Monopoly Producers and their Great Profits. 
— The people of the United States have within 
the last quarter of a century witnessed a stronger 
tendency to concentration and combination in 



302 PRINCIPLES OF WEALTH AND WELFARE 

business management than has any other 
people in the history of the entire world. The 
gigantic corporation has entered into American 
economic, political, and social life, to an unpar- 
alleled extent. This great corporation as a 
productive power we have already considered. 
We have seen that it can produce at a lower 
cost than can the small producer. It converts 
its raw material entirely into finished product, 
and none of it is wasted. The small producer 
makes only a few products out of his raw material 
and allows much of it to go to waste. The large 
corporation also, for the most part, makes use of 
specialized and efficient skill and machinery in 
the manufacture of its goods. It likewise makes 
a great saving in the advertisement and sale of 
its products. The small competing producers 
send many agents and circulars into the same 
field, and duplicate much space in the columns 
of the newspapers. The large corporation sends 
only one agent and pays for only one space in 
the advertising columns. The small producer 
buys and sells in small quantities, and must 
consequently pay small package transportation 
charges. The large corporation buys and sells 
by the car load, and saves much in freight and 
transfer costs. The large corporation, with 
more or less exclusive control of a certain line 
of production, can, therefore, produce its prod- 



MONOPOLY MANAGEMENT 303 

ucts at a lower cost per unit of products. If it 
sells them to the consumer at the same price 
that the small producers are compelled by the 
cost of production to charge, the large producer 
makes great profits. 

Monopoly Management and the Distribution of 
Wealth: (i) The Consumer, — But how does this 
large monopolistic producer actually treat the 
consumer of its products .f* It can produce 
them at a low cost. Will it also sell them at 
a low price } This, of course, depends upon the 
conditions of the market of these products, and 
also upon the character and foresight of the man- 
agement of such a corporation. The manager 
who thinks little of the future of his business 
will sell for the time at that price which will 
bring him the greatest net returns or profits; 
he will sell at the highest possible price. 

The producer, whether monopolistic or com- 
petitive, is, however, only one party to a price. 
The price of every product is, as we well know, 
the result of an agreement between the con- 
sumer and the producer. If the producer fixes 
the price of a goods at a high point, the con- 
sumer will buy a smaller quantity of this goods. 
If the producer charges a lower price, the con- 
sumer will buy more. The amount of this elas- 
ticity on the part of the consumer's demand, in 
consequence of a change in the producer's price, 



304 PRINCIPLES OF WEALTH AND WELFARE 

varies. And its variations depend greatly upon 
the nature of the goods, as to whether they are 
more or less necessary to the consumer. The 
manager, even though he is striving for imme- 
diate maximum returns, is, therefore, greatly in- 
fluenced by the consumer, both in respect to the 
price which he asks and the quantity of the 
goods which he produces. 

That manager of a great and monopolistic 
corporation, who on the other hand aims for 
maximum returns in the future, as well as in the 
present, will deal much more kindly with the 
consumer of his products. He will do far more 
for him than will the short-sighted manager ; he 
will furnish him with a sufficient supply of goods 
and at a more moderate price. And, if this 
manager is in a field of production which is 
subject to the tendency of decreasing costs, if 
the more he produces the less per unit of goods 
it costs him to produce them, he will treat the 
consumer in a still kinder manner. He will sell 
him goods at a lower and lower price. In such a 
field the manager desires to produce as great 
quantities as possible ; it costs him less and less 
per unit of goods the more he produces. He 
also desires to sell more and more. 

The great monopolistic manager produces at 
a lower cost, and he will in the main, it seems 
to us, sell his goods at a lower price. The 



MONOPOLY MANAGEMENT 305 

power which the great corporation producer has 
over the consumer, while it is extraordinarily 
great, is not infrequently used for the benefit of 
the consumer as well as of the producer. There 
are, it is true, a few monopoly managers who 
really and truly rob the consumer, but as we 
see it their number is by no means great. 

Monopoly Management and the Distribution of 
Wealth : (2) Labor ^ Land, and Capital. — In what 
manner does this wonderfully great manager 
treat the other agents of production t Such a 
management exercises a mighty influence over 
labor, land, and capital. It is a great factor in 
their market. Does it use its position of advan- 
tage to drive hard bargains with these agents } 
Does it give to them some of its clear profits .? 
While the monopolistic manager wields a mighty 
power, we believe that upon the whole this power 
is not used to the disadvantage of labor, land, or 
capital. 

That the manager desires to buy the use of 
his agents of production and his raw material 
at the lowest possible cost, no one will deny. 
He is just as desirous of buying these commodi- 
ties at a minimum price, as he is of selling his 
own finished products to the consumer at a 
maximum price. He works for greatest net 
profits in either case, just as does any producer, 
whether small or large. But is it really most 

X 



306 PRINCIPLES OF WEALTH AND WELFARE 

economical for him to offer the minimum rate 
of wages, rent, and interest ? We have already 
shown, as we believe, that the monopolistic man- 
ager finds it a matter of his own profits to take 
into his consideration the welfare of the con- 
sumer, at least to offer him goods at a rate which 
will bring to the producer the greatest net re- 
turns. We also believe that the monopolistic 
manager will be compelled, in the main, for 
the sake of his profits to offer to labor, land, and 
capital, as well as to raw material, a price which 
will cause them to sell their services to him. In 
actual practice, we find that not a few of the 
largest managers pay fair wages, rent, and in- 
terest, as well as fair prices for the raw material 
out of which they make their finished products. 
No one will deny that some of these managers 
use their great influence to drive hard bar- 
gains with all the other agents of production, 
and also with the producer of raw material. 
The number of such managers is, however, 
very small. 

Monopoly Management and the Distribution of 
Wealth: (3) Other Managers m the Same 
Field. — The use which the great corporation 
manager makes of his mighty power over the 
consumer of his products and over the other 
agents of production, while in some respects 
unjust and tyrannical, while in some respects like 



MONOPOLY MANAGEMENT 307 

that of the robber, is far the larger part fair and 
friendly. Great rewards, it is very true, are 
obtained by these producers, but they also pos- 
sess wonderfully great productive power. They 
are great producers, and their pay should be 
correspondingly great. They at times also re- 
ceive enormous profits, but they must at other 
times bear great losses. Their profits for the 
most part are, however, much greater than their 
losses. Of these clear gains they keep a large 
part for themselves, but they also divide both 
with the other agents of production and with the 
consumers of their goods. But the conduct of 
the great corporation manager toward his 
rival producers is, on the other hand, much 
less friendly and fair. Not infrequently does 
this rivalry assume the spirit of trickery and 
war. It should, however, be said that rivalry 
between two individual producers, or two small 
corporation producers, at times assumes a spirit 
of meanness and unfairness not to be excelled. 
But in either case such spirit is to be dis- 
approved and condemned. 

Monopoly Management and the Distribution of 
Wealth: (4) The Small Stockholders. — In this 
great joint stock corporation there are thousands 
and thousands of stockholders, both large and 
small. The actual management is, however, 
carried on by a very few stockholders whom we 



308 PRINCIPLES OF WEALTH AND WELFARE 

call the directors and the president. Much of 
the capital of this great corporation is supplied 
by men who know exceedingly little of its 
administration, and who, by virtue of the 
loose corporation laws of several of the 
American states, are not able to find out 
many of the facts of the business or of its 
management. 

These few men in their administration can, 
and not so infrequently do, carry on the busi- 
ness largely for their own individual interests, 
irrespective of the interests of the body of stock- 
holders. And at times the managers gamble in 
the stocks of their own corporation, for their own 
personal gain and to the loss of the small holder 
of stock. They also at times overcapitalize 
their enterprise, from two to five times its actual 
earning capacity, and offer this watered stock, 
upon which dividends can never be paid, to an 
ignorant public. Such conduct as this is, how- 
ever, not necessarily inherent in the great in- 
dustrial organizations. If we had a system of 
strict corporation laws, as have several of the 
European states, such conduct would be im- 
possible. The small stockholder and investor 
unquestionably have the right to know the chief 
facts of the business and the conduct of its man- 
agers, and it is the duty of the state to make it 
possible for them to know these facts. 



LEGISLATION AND MONOPOLY MANAGEMENT 309 

D. Legislation mid Monopoly Management 

The State and the Distribution of Wealth. — The 

state, as we know, takes some part in the dis- 
tribution of wealth into labor, land, capital, and 
business management. The legislation which 
the state has enacted in reference to the first 
three of these agents and their earnings we have 
already considered. It is now necessary for us 
to discuss the legislation in reference to business 
management of the large type. Management, 
when organized upon a small scale, is supposed 
to be self-regulative, and its abuses are thought 
to be largely eliminated by the working of the 
principle of competition. But management up- 
on a large scale possesses such a mighty power 
over the consumer and the other agents of pro- 
duction, and this power has at times been 
abused, that each of the leading nations has 
enacted a considerable body of laws either for 
its destruction or its regulation. We have said 
under Section II that management upon a very 
large scale has in the main been along the line 
of certain manufactures and along the line of 
transportation. We shall now speak especially 
of the legislation of our own country in refer- 
ence to these two lines. 

Legislation and Monopoly Management in Man- 
ufacture and Transportation. — As we have 



310 PRINCIPLES OF WEALTH AND WELFARE 

already seen, the American tendency to business 
management upon a larger and larger scale has 
within the last quarter of a century been ex- 
ceedingly strong. Within this period we have 
enacted a large body of monopoly legislation, 
which in popular speech is called anti-trust leg- 
islation. And practically all of these laws have 
been passed for the purpose of destroying such 
forms of business management. These forms 
have come into existence within such a marvel- 
ously short space of time, and their power in 
the distribution of wealth has been so wonder- 
fully great, that they have seemed monster-like 
in the minds of the public. They have appeared 
as monsters not only in the economic aspects 
of our life, but also in the political, social, in- 
tellectual, and religious phases of our life. The 
fact that they possess wonderfully great power 
in the production and distribution of wealth, 
and that this power has at times been employed 
for the oppression of others, has brought upon 
them wholesale public condemnation. And the 
fact that some of our states have, by charters, 
granted to the managers of these great organi- 
zations the legal right to carry on a business, 
in which the small stockholders and the pub- 
lic are vitally interested, in practically a secret 
way, has had much to do in causing the Ameri- 
can people not only to condemn them but also 



LEGISLATION AND MONOPOLY MANAGEMENT 311 

to attempt to destroy them. Their numerous 
points of great advantage have in the pubKc 
eye been overlooked. Their few deeds of op- 
pression and wickedness have been talked of 
and thought of until the large corporations 
loom up before the public mind as the very 
" monsters of iniquity." In the eyes of this pub- 
lic, they are corporate beings in whom there is 
no soul, though in fact some of their managers 
have as noble souls as the economic realm can 
anywhere supply. 

State Anti-Trust Legislation a Failure. — Under 
such public feelings, more than thirty of our 
states, as well as our national government, 
have passed laws called anti-trust or anti-mo- 
nopoly laws. These laws have been passed for 
the purpose of the destruction of such business 
management as is upon a large and monopolistic 
scale. And these acts, though new in their 
form, are based upon principles which are 
very old. For almost eight hundred years the 
common law of the English people has forbidden 
any business management which restrains and 
eliminates competition in production. When 
the American states are legislating for the 
destruction of monopolistic management, they 
are really giving definite statement to an old 
English idea. 

But what has all this legislation for the 



312 PRINCIPLES OF WEALTH AND WELFARE 

purpose of forbidding and destroying manage- 
ment upon a large and monopolistic scale ac- 
complished ? Such forms of management have 
wonderfully grown and multiplied in the very 
face of this legislation. The anti-trust laws 
which are upon the statute books of more 
than thirty of our states have, as we well know, 
been practically of no avail. Many of them, it 
must be confessed, were enacted largely for 
sentimental reasons. They were not based 
upon sound and practical principles of business 
life. If these laws had been passed with the 
view of regulating such forms of management^ 
not of destroying them^ much more^ we fully 
believe^ would have been accomplished. To at- 
tempt by legislation to destroy an institution, 
which possesses many points of great advan- 
tage to a people, is practically impossible. The 
regulation of the abuses of such forms of man- 
agement by means of legislation is, on the other 
hand, both a very proper and a practical thing. 
Business management on a large scale, as we 
have seen under the head of production, pos- 
sesses too much productive power for any peo- 
ple for them to destroy it. And the sooner 
our legislation is changed from the idea of 
destruction to that of regulation, the sooner will 
the control of the state over the great and pow- 
erful monopolistic producers become effective. 



LEGISLATION AND MONOPOLY MANAGEMENT 313 

There is yet another reason why the anti- 
trust laws of our states have been of little avail. 
While more than thirty states have legislated 
for the destruction of monopolistic manage- 
ment, New Jersey, Delaware, and West Vir- 
ginia have by their corporation laws stimulated 
the formation of such organizations. In fact, 
almost 95 per cent of the so-called trusts, which 
are now in operation in our whole country, have 
received their legal rights and privileges by 
charters from these three states. And the con- 
duct of monopoly management has been for 
the most part legal; it has been according to 
its charter. The courts of the states which 
have enacted anti-monopoly legislation have 
been inclined to act according to judicial cour- 
tesy and to accede to the rulings of the courts 
of the states which have granted the charters. 
This legislation has not, therefore, been enforced 
by the courts. The corporation laws of our states 
differ so widely that it is practically impossible 
for the individual states to enforce anti-trust or 
anti-monopoly legislation. The states must make 
their corporation laws uniform, or their control 
over the great monopoly producer, who carries 
on business throughout our vast country, will 
continue to be exceedingly ineffective. 

National Anti-Trust Legislation largely a Fail- 
ure. — Legislation on the part of the states 



314 PRINCIPLES OF WEALTH AND WELFARE 

against the great corporations has completely 
failed. The national government now feels called 
upon, by public opinion, to undertake the matter. 
This opinion now demands that our federal 
government destroy and prevent such forms of 
management. And our federal government 
undertook such a task in 1890, and the na- 
tional anti-trust act, popularly known as the 
Sherman law, went upon the statute books 
of the American nation. But through a period 
of fifteen years this act has remained largely in- 
operative. For eight years it was thought to 
be unconstitutional, and during this time it was, 
of course, wholly inoperative. It was then by our 
courts declared to be constitutional and enforci- 
ble, but we then allowed it to remain without 
enforcement for five more years. Since 1903 we 
have, to be sure, done something toward its 
enforcement, but it has been very little. Ac- 
cording to this act, all organizations upon a 
large scale, which restrain or eliminate the prin- 
ciple of competition, are illegal and shall be 
destroyed. But still such forms of manage- 
ment have grown with wonderful strides, and in 
the very face of a federal act forbidding them ! 
Federal legislation for their destruction has, 
just as that of the individual states, almost com- 
pletely failed. 

Need of Uniform Corporation Laws, Publicity 



LEGISLATION AND MONOPOLY MANAGEMENT 315 

of the Facts of Management, and Practical Regula- 
tion. — It Is now necessary for us to change the 
basis of our legislation. Legislation by the fed- 
eral government, as well as by the states, to be 
effective, must be along the line of regulation, 
not of destruction. There must also be great 
changes in our corporation laws. We need one 
unified system of such laws, as some of the Eu- 
ropean states have, instead of many different 
systems. Publicity of the chief facts of all 
forms of management should be required, so 
that the producer who would compete may act 
in the light and not in darkness, so that the 
smaller stockholder, the consumer, and all the 
other agents of production may know of the busi- 
ness and its management. Such a requirement 
would greatly eliminate the gambling in stocks 
by the managers, and would, therefore, cause 
the business to become more stable. Such a 
requirement of publicity would likewise elimi- 
nate much of the vast quantity of water which 
now thoroughly saturates our stocks. The m- 
vestor would then know what is real and what is 
fictitious in the stocks of the great corpora- 
tions, and he would pay a price accordingly. 
He now buys these stocks in uncertainty and in 
ignorance. Something along thelineof pubHcity 
is now being accomplished by our national and 
state bureaus of corporations, but as yet our 



3l6 PRINCIPLES OF WEALTH AND WELFARE 

regulation of the great corporations has, upon 
the whole, failed. The individual states work- 
ing by themselves have almost completely failed. 
The federal government, in connection with the 
states, has largely failed. 

That these great corporations, which possess 
enormous power in the production of wealth, and 
especially in its distribution, should be under a 
sane and practical governmental regulation needs 
no argument. They unquestionably possess 
great productive power for the American people, 
and, while this power is oftentimes employed 
for the wealth and welfare of all the people, it is 
at other times employed purely for the benefits 
of the individual managers. What the fairest 
and most practical form of this governmental 
regulation is we do not yet know. A thorough- 
going system of sane and practical regulation 
of business management upon a large and mo- 
nopolistic scale is yet to be worked out. This 
regulation cannot, of course, be accomplished 
by a method which is based upon sentiment. 
It must be for the sake of all the parties con- 
cerned. And it must not destroy the better 
parts of such management ; it must not destroy 
its productive power. But the abusive and op- 
pressive use of this power should be eliminated 
by this governmental regulation. 

The proposed method of requiring all large 



LEGISLATION AND MONOPOLY MANAGEMENT 317 

organizations of business management to take 
out charters from the national government, as 
well as from the individual states in which they 
operate, has much in it that is deserving of 
most careful consideration. This requirement 
would certainly tend to create a uniform body 
of corporation laws in all of the states, and this 
is highly desirable. It would likewise specifi- 
cally confer upon the federal government the 
legal right to exercise a control in the affairs of 
all the great corporations. It is very clear that, in 
our own country at least, both the national and the 
state governments should take a part in the reg- 
ulation of the abuses which come from the great 
and monopolistic corporations. Under our pres- 
ent system there is no uniformity. There is 
great conflict of authority between states and 
states, and also between the national govern- 
ment and that of the individual states. And 
under such a system governmental regulation 
must be, to say the least, most chaotic and 
inefficient. 

QUESTIONS 

(i) Why is one man paid ^1500, in annual salary, for 
his business management ? Why his neighbor ^50,000 ? 

(2) Who assumes the risks of a business ? the la- 
borers ? the managers ? 

(3) Who receives the profits of a business ? Do they go 
to labor^ land, capital, as well as to management ? 



3l8 PRINCIPLES OF WEALTH AND WELFARE 

(4) Who bears the losses of a business ? the manage- 
ment ? labor ? land ? capital ? 

(5) Does the monopoly manager deal fairly in the dis- 
tribution of wealth into wages, rent, interest, and pay of 
business management? 

(6) Does he deal fairly with the consumer of his goods? 



CHAPTER VII 

DISTRIBUTION OF WEALTH : THE STATE 

The State in the Production of Wealth. — Of 

the state as a producer of wealth we have al- 
ready spoken. We have seen that the state, 
by the protection which it renders to the lives, 
liberties, and properties of the individual pro- 
ducer, creates fundamental and vital conditions 
of wealth production, and indirectly produces 
wealth and welfare. We have also seen that 
the state, by its educational, industrial, and 
commercial policies and methods, directly pro- 
duces the conditions of wealth and welfare. 
Though these utilities which the state creates 
are in many cases not of a material and tangible 
form, nevertheless they are of enormous value 
in the production of those utilities which are of 
a more material and concrete form. 

The State in the Distribution of Wealth; How 
Much should it Receive? — The state plays a great 
part in the distribution of wealth as well as in 
its production. Of its influence in the distri- 
bution into wages, rent, interest, and pay of 
business management, we have already spoken. 

319 



320 PRINCIPLES OF WEALTH AND WELFARE 

But what part should the state itself receive of 
every product of the economic realm ? Ac- 
cording to our standard, it should receive the 
exact amount of value which it creates or pro- 
duces, no more and no less. For the state to take 
in taxes or other forms more of each product than 
it really produces in that product, is for the 
state to rob the individual. On the other hand, 
it is equally true that the individual robs the 
state when by any means he does not pay into 
the state as much value as it creates in each of 
his products. Our standard of value for value 
added is universal. It applies to all social, in- 
tellectual, and religious organizations, as well 
as to all economic institutions. It applies to 
the individual worker, whether he produces raw 
wheat or cotton, whether he creates pieces of 
art, music, and literature, or whether he seeks 
after the great truths of nature, man, and God. 
It likewise applies to all the countless organiza- 
tions of the individual. 

But does the state ever receive in the distri- 
bution of wealth more than its own specific 
product ? By virtue of its great position of 
influence over the individual, it unquestionably 
possesses the power to take more than its own 
part. Its power of taxation is in some respects 
absolute. The exact extent to which this enor- 
mous power of the state is employed depends 



DISTRIBUTION OF WEALTH: THE STATE 32 1 

largely upon the character of the people of a 
state and upon the form of their political organ- 
ization. In Russia, for instance, the state may 
very easily take more than the part which it 
produces, for the great masses of Russians have 
no influence whatever in their government. 
In England or the United States, on the other 
hand, it is much more difficult for the state to 
take in the distribution of every product a part 
which is larger than that which it creates. In 
these states all the people exercise a power, 
direct or indirect, in the government. But even 
in some of our own municipalities and states, 
which in theory are thoroughly democratic, the 
government takes more than it actually pro- 
duces. In these cases the individual citizen is 
himself responsible, mainly because of his indif- 
ference to either good or bad government ; and 
he at times allows himself to be robbed by 
the political leaders. 

Efficiency of the State and the Quantity of Wealth 
it Receives. — As we have already seen, the pay 
of the individual worker, whether he be a simple 
laborer or a great business manager, is regu- 
lated by his inherent power and by the con- 
ditions of the supply and demand of the labor 
of his special grade. But the productive power 
of the state is not at all subject to the condi- 
tions or changes of the market. Its supply is 



322 PRINCIPLES OF WEALTH AND WELFARE 

practically permanent, and its services are 
largely, if not wholly, monopolistic. The state 
has no competitor whatever when it supplies 
government service to a people. The pro- 
ductive power of the state depends, therefore, 
entirely upon its own efficiency, and its pay 
should always be in strict proportion to this 
efficiency. 

State Control in Economic Life; How far. — 
That the state should exercise some control in 
the production, and especially in the distribu- 
tion of wealth, follows from the very nature of 
wealth and welfare. Man as an economic being 
is both an individual and a part of a larger body 
which we call society. In the consumption of 
wealth he is more individualistic, or at least 
may be, than he is in its production and distri- 
bution. But in all the aspects of his economic 
life he is greatly influenced by his social sur- 
roundings ; he is profoundly influenced by the 
society which surrounds him and of which he is 
in part the maker. How far he should be 
allowed by this society to be individualistic, this 
is the great and constant question. Every 
people is always struggling over this ever- vital 
question and the answer is never final. 

Two Extremes: State Control or Complete In- 
dividual Freedom. — We may at one time have 
a great amount of state control of economic 



DISTRIBUTION OF WEALTH: THE STATE 323 

life. The state may regulate wages, rent, in- 
terest, and the pay of business management, as 
well as the part which it itself receives from 
the industries of its citizens. It may direct the 
channels of manufacture, transportation, and 
commerce. The state may also at times not 
only regulate economic life but also dominate 
it. But such extreme state regulation and con- 
trol of the production and distribution of wealth 
takes away from the individual much of his 
desire to put forth great activity and effort. 
It saps his vigor and deadens his ambition to 
accomplish things. Under such a dominating 
influence economic life is never very active, 
nor is it many-sided. In a country like Russia or 
Turkey, where the individual is in a large sense 
a servant of the state, if not indeed a slave, 
economic life is, at best, only one-sided. It is 
never thoroughly or completely developed. Too 
much state regulation and control in the indus- 
tries not only dwarfs the economic life of a 
people, but also' decreases its wealth and welfare. 
The other extreme is equally detrimental to 
economic life and progress. Among a people 
whose government stands aloof and permits the 
individual to enjoy almost complete freedom to 
act as he pleases, anarchy is the prevailing con- 
dition. Under such a government, the strong 
man employs the weak, but pays him the 



324 PRINCIPLES OF WEALTH AND WELFARE 

minimum of wages and works him under the 
most unwholesome conditions. The principle of 
competition may at times bring some relief, but 
this very principle may at other times become a 
savage and brutal one. Adam Smith, in his 
famous and immortal book. The Wealth of 
Nations, went too far in the direction of in- 
dustrial freedom to the individual. His posi- 
tion was the result of an extreme reaction. His 
book appeared at a time, in 1776, when much 
of the world was longing to be free from the 
oppression and interference of the state. For 
centuries and centuries the individual in all the 
aspects of his life had been largely dominated 
by the government, in the making and admin- 
istration of which he had exceedingly little part. 
He now yearned to be free not only in his po- 
litical, social, intellectual, and religious aspects, 
but also in his economic. The government, of 
which he was practically no part, must cease to 
regulate him and dominate his activities and 
efforts. 

Adam Smith gives voice to this deep long- 
ing for a greater and greater freedom to the 
individual in his economic life. The English 
and American peoples give heed to this voice, 
and the state ceases to dominate their eco- 
nomic activities. As they see it, wealth and 
welfare can more easily be produced under a 



DISTRIBUTION OF WEALTH: THE STATE 325 

regime of freedom than under that of state con- 
trol. The government, especially in England 
and the United States, grants greater freedom 
to the individual producer. Its control over 
wages, interest, and the pay of management 
almost entirely ceases to be operative. The 
state no longer directs the channels of manu- 
facture and trade. The business manager, 
who is now allowed practically perfect freedom, 
grows rich within a few months, but his em- 
ployees are compelled to work for long hours 
and small wages, and under unsanitary and dan- 
gerous conditions. With not even regulation 
on the part of the state, this manager adds 
enormously to his own wealth, but it is largely 
at the cost of welfare to his employees. 

Complete economic freedom to the individ- 
ual enables the strong to grow rich and power- 
ful, but it diminishes the welfare of the masses. 
Let us examine a few illustrations. Complete 
freedom to the individual to coin money adds 
to the wealth of a few, but the great variety of 
money which comes in consequence hinders 
industrial and commercial life beyond calcula- 
tion. Perfect freedom to the individual in 
banking has many a time demonstrated to the 
whole world its great hindrances and evils. 
" Wild-cat " banking is only too well known, 
and no sane man thinks of absolutely perfect 



326 PRINCIPLES OF WEALTH AND WELFARE 

freedom to the individual along this line of 
production. Neither can the state allow per- 
fect freedom to the individual to carry on manu- 
facture and transportation, and to employ the 
productive power of these for his own private 
wealth and at the cost of the public's welfare. 

Rigid state control of the industries of a peo- 
ple is a great obstacle to their progress. Com- 
plete individual freedom in economic life is 
equally a great hindrance. They are both ex- 
treme methods. They must each be modified 
and combined with the other before they can 
bring to a people maximum benefits. 

Individual Freedom under State Regulation the 
Ideal. — In many aspects of his economic life, 
the individual should enjoy a great degree of 
freedom. When possessed of such freedom he 
puts forth his greatest activity and effort, and 
his society, as well as himself, receives the bene- 
fits. But in many other aspects of his economic 
life he should be under state regulation. The 
state, not the individual, should maintain 
uniform standards of weights, measures, and 
money. The wealth and welfare of the 
whole society absolutely demand that these 
standards be not left to the individual to regu- 
late ; their uniformity is of too fundamental 
and vital importance to all of the people. The 
individual should, on the other hand, have the 



DISTRIBUTION OF WEALTH: THE STATE 327 

freedom to undertake agriculture, mining, manu- 
facture, transportation, or commerce, of any form 
and upon any scale. But the method by which 
he carries on these groups of production, and 
especially the manner in which he distributes 
the values of their products, should at all times 
be under sane state regulation. The individ- 
ual should have the perfect moral and economic 
right to distribute the values of his products into 
wages, rent, interest, and the pay of manage- 
ment, according to the productive power of each 
of the agents that produce these products. He 
should also have the perfect moral and economic 
right to sell his products to the consumer accord- 
ing to their values and according to the condi- 
tions of their supply and demand. So long as 
the individual so acts in the sale of his products 
and in the distribution of their values, the society 
in which he lives and labors has no moral or 
economic right to restrict his freedom. With 
such conduct on the part of the individual, 
whether it be voluntary on his own part, or 
whether economic forces compel him to so act, 
the state has no right to legislate in any man- 
ner which will directly or indirectly take from 
his liberty. Liberty under such conditions is 
a great and mighty power for good. Under its 
powerful stimulus the wealth and welfare of all 
are wonderfully increased. 



328 PRINCIPLES OF WEALTH AND WELFARE 

When, however, the individual does not act, 
or is not compelled by economic forces to act, 
according to such a standard of distribution, the 
state must restrict his freedom. When the 
economic forces cannot regulate themselves 
in a manner that will bring wealth and wel- 
fare to all, the state should regulate these forces. 
And such regulation, if sanely and fairly done, 
becomes a great power of benefit and bless- 
ing to all. Governmental control and regula- 
tion of the individual who has committed no 
economic or moral wrong, saps and deadens the 
vital economic force of a people. But govern- 
mental regulation of the individual who has 
transgressed his own privileges and his soci- 
ety's sacred rights causes this vital economic 
force to be wonderfully multiplied. 

QUESTIONS 

(i) How much of your wealth should the state receive ? 
(2) How far should the state regulate and control you 
in your business activities? 



APPENDIX 



COURSE OF READINGS 

For the sake of simplicity, only a few books are 
placed on our list. For a more complete list the 
teacher and reader are referred to the following 
works : The Reader s Guide in Eco7i07nic, Social^ and 
Political Science, by Bowker and lies (Putnam's Sons, 
N. Y.) ; Outlines of Economics, by Ely (Macmillan, 
N.Y.) ; Introduction to the Study of Economics, by 
Bullock (Silver, Burdett & Co., N.Y.); Introduc- 
tion to Economics, by Seager (Holt & Co., N.Y.); 
Principles of Economics, by Seligman (Longmans, 
Green & Co., N.Y.). 

THE HISTORY OF ECONOMICS 
Ingram, J. K. : History of Political Economy (Macmillan, N.Y.) 

GENERAL ECONOMICS 

Seager, H. R. : Introduction to Economics (Holt & Co., N.Y.) 

Bullock, C. J. : Introduction to the Study of Economics (Silver, 

Burdett & Co., N.Y.) 
Gide, C. : Principles of Political Economy (Heath «& Co., 

Boston; 1904 Ed,') 
Fetter, F. A. : The Principles of Economics (Century, N.Y.) 

Clark, J. B. : The Distribution of Wealth (Macmillan, N.Y.) 

Smith, Adam: Wealth of Nations (Putnam, N.Y.) 

Seligman, E. R. A. : Principles of Econojuics (Longmans, Green & 

Co., N.Y.) 
329 



330 



APPENDIX 



Cheyney, E. P. : 
Coman, K. : 



Hadley, A. T. : 
Johnson, E. R. 



Scott, W. A. : 
White, H. : 

Dunbar, C. F. 



Adams, H. C. : 
Seligman, E. R. A. : 
Taussig, F. W. : 

Dewey, D. R. : 

Ashley, W. J. : 

Ely, R. T. : 

Adams and Sumner ; 
Mitchell, J. : 



Ely, R. T. : 
Jenks, J. W. 
Meade, E. S. 



Ely, R. T. : 
Marx, Karl ; 



ECONOMIC HISTORY 
An Introduction to the Industrial and Social 

History of England (Macmillan, N.Y.) 
The Industrial History of the United States 

(Macmillan, N.Y.) 

TRANSPORTATION 
Railroad Transportation (Putnam, N.Y.) 
American Railway Transportation (Appleton, 
N.Y.) 

MONEY AND BANKING 

Money and Banking (Holt & Co., N.Y.) 
Money and Banking (Giwa. & Co., N.Y.; 1902 

Ed.) 
Theory and History of Banking (Putnam, N.Y. ; 

1904 Ed.) 

PUBLIC FINANCE 
The Science of Finance (Holt & Co., N.Y.) 
Essays in Taxation (Macmillan, N.Y.) 
The Tariff History of the United States (Put- 
nam, N.Y.; 1900 Ed^ 
The Financial History of the United States 

(Longmans, Green & Co., N.Y.) 
The Tariff Problem (King & Son, London.) 

LABOR 
The Labor Movement in America (Macmillan, 

N.Y.; 1905 Ed>) 
Labor Problems (Macmillan, N.Y.) 
Organized Labor (Am. Bk. & Bible House, 

Phila.) 

MONOPOLIES 
Monopolies and Trusts (Macmillan, N.Y.) 
The Trust Problem (McClure, N.Y.; 1901 Ed^) 
Trust Finance (Appleton, N.Y.) 

SOCIALISM 

Socialism and Social Reform (Crowell, N.Y.) 
Capital ( Translation) (Humboldt & Co., N.Y.) 



INDEX 



Agents of production, 57-127; 
capital, 92-103; labor, 57-74; 
land, 76-90; management, 104- 
127 ; each paid according to their 
productive power, 234-236. 

Agriculture (and mining), 128- 
133; first aspect of production, 
128-130; forms of wealth — 
elementary utilities, 130-131; 
importance of, 130; method and 
organization, 131-133. 

Ambition (laborer's), 59-60. 

Arbitration, 265-266. 

Army: aid to production, 190; 
wants for, 22. 

Aspects of production, 128-207; 
agriculture and mining, 128- 
133; exchange — commerce, 
149-159; exchange — money a 
medium of exchange, 173-186; 
exchange — money a standard of 
value, 161-172; manufacture, 
134-138; state in production, 
188-208; transportation, 139- 

147. 

Births, 64-71. 

Boycott, 256-257, 263-264. 

Business, motives and acts, 1-3. 

Canals: aid to production, 193; 
wants for, 20. 

Capital, 92-103; capitalistic pro- 
duction, 102-103; mobility of, 
99-100; nature of, 92-93 ; pro- 
ductivity of, 94-102 ; relation 
to land, 97; to wealth, 95; 
treatment of, by monopolist, 
305-306. 

Carnegie, 61, 109. 



Checks, 182-184. 

Cities (American), 72. 

Coin, 176-179. 

Collective bargaining, 254-255. 

Combination: in labor, 61-64; 
in manufacture, 136-138; in 
transportation, 145-147. 

Commerce (exchange), 149-160; 
apparently for money, in reality 
for goods, 155-157; domestic 
and foreign, 154-155; impor- 
tance of, 149-50; mechanism 
of, 153-154; productivity of, 
157-159; relation to producer 
and consumer, 151-153; to 
production — time utilities, 150- 

Competition: in labor, 61-64; i^i 
management, 122-124. 

Conciliation, 264-265. 

Consumer (and producer), 53-54, 
209-211, 303-305. 

Consumption of wealth, 13-49; 
amount of, 25-28; causes of 
wants, 13-15 ; how to distribute 
wealth for, 45-46; insufficient, 
28-33 5 relation to commerce, 
1 51-153; to production, 46-49, 
209-226; to transportation, 
142-143; to welfare, 13-49; of 
utilities, not of material things, 
23-24; wants, 22-23; waste, 

30-32. 
Cooperation (in production), 124- 

127. 
Copper (coin), 176-179. 
Copyright, aid to production, 192- 

193- 



331 



332 



INDEX 



Courts: aid to production, 190- 
191; wants for, 22. 

Deaths, 64-71. 

Demand, consumer's, 35-49; de- 
crease in, for successive units of 
goods, 41-45; elasticity of, 37- 
39; for labor, 73-74; for land, 
83-86; law of, 39-40; relation 
to consumer's value, 35-36; 
to products, 52-53; to wants 
and their satiation, 35-36, 40-41. 

Demand (and supply): consumer 
and producer, 209-211; inter- 
est, 286-289; market, 21 1-2 12 ; 
market value and price, 209- 
226; increase of price, 222- 
226; for money, 183-185; pay 
of agents, 234-236; pay of 
management , 294, 29 6-2 9 7 ; 
rent, 275-276, 280-283; spec- 
ulation, 212-214; wages, 238- 
242, 244-247. 

Distribution of wealth, 227-328; 
agents of production, pay for 
productive powers, 234-236; 
factory acts, 270-273; interest, 
286-292 ; pay of management, 
293-317; productivity theory, 
231-233; relation to produc- 
tion, 227; rent, 275-285; state, 
319-328; trades unions, 250- 
270; value for value, 228-231; 
wages, 237-273. 

Drafts, 182-184. 

Economic: acts, 2, 5-6; forces, 10- 
1 1 ; institutions and conditions, 
old and new, 7—8; motives, 
2, 5-6 ; relation to consumption, 
3; to the forces of nature, 2-3; 
to production, 3; to social 
sciences, 2-3. 

Economics, definition of, 1-3. 

Education: aid to production, 60, 
192; wants for, 20. 

Endurance (laborer's), 58-59. 



Energy (laborer's), 58-59. 

Exchange: commerce, 149-160; 
money a medium of, 173-186; 
money a standard of value, 161- 
172. 

Executive: aid to production, 191 ; 
wants for, 22. 

Factory: acts, 270; children and 
women in, 271-273. 

Fertihty (land's), 78-80. 

Gold: coin, 176-179; dollar, 164- 
165; Gresham's law, 170-172; 
standard of value, 163-165, 
168-170. 

Greenbacks, 186. 

Gresham's Law, 170-172. 

Groups of production : see Aspects 
of production. 

Harbors, aid to production, 193. 

Heat (lands'), 80. 

Imagination (laborer's), 60-61. 

Immigration, 64, 71-73. 

Individual: capacity, 57; eco- 
nomic acts and motives, 5-6, 
8-10; imagination, 60-61; in- 
telligence, 59-60; method of 
using capacity, 61-64; strength, 
58-59; wants for development, 
18-20. 

Intelligence (laborer's), 59-60. 

Interest, 286-292; demand for 
capital, 286-287; earning of 
capital, 286; efficiency of capital, 
287-288; legislation, 290-292; 
regulated by productive power 
of capital, 286-287; security, 
289-290; socialism, 292; supply 
of capital, 288-289. 

Judgment (laborer's), 59-60. 

Labor: ambition, 59-60 ; amount, 
64-73; births, 64-71; capacity 
of individual, 57-58; char- 
acteristics, 5 ; cities (American), 
72; climate, 65; combination, 
61-64; deaths, 64-71; demand 



INDEX 



333 



for, 73-74; economic (and 
social) conditions and ideals, 
66-70; energy, 58-59; en- 
durance, 58-59; growth in 
United States, 70-73 ; imagina- 
tion, 6o-6r; immigration, 64- 
71; intelligence, 59-60; judg- 
ment, 59-60; rich, 69; skilled 
class, 69-70; treatment of, by 
monopolist, 305-306; unskilled 
class, 67-69; vigor, 66; west- 
ward movement, 72. 
Land: amount of, 80-82; de- 
mand for, 83-86; fertility of, 78- 
80; forces of nature, 76-78, 89- 
90; heat, 80; light, 80; mechan- 
ical properties, 78-80; moisture, 
80; relation to capital, 97; to 
wealth, 97; returns, increasing 
and decreasing, 86-89; treat- 
ment of, by monopolist, 305-306. 
Legislation: aid to production, 

191; wants for, 22. 
Legislation and monopoly man- 
agement, 309-317; anti-trust 
(national), 313-314; anti-trust 
(state), 311-313; in manufac- 
ture, 309-311 ; need of uniform 
corporation laws, 314-317; 
state in the distribution of 
wealth, 309; in transportation, 

309-311- 

Letter of credit, 182-184. 

Light: aid to production, 193; 
wants for, 80. 

Loss: borne in part by the man- 
ager, 298-301; market price 
equals cost and loss, 221; rea- 
sons for, 297-298. 

Making a Hving (and religion), i. 

Man: relation to wealth, 4-5; 
to welfare, 4. 

Management, pay of: earning 
of, 293-294; efficiency, 294- 
296; monopoly, 301-308; prof- 



its, 297-303; regulated by pro- 
ductive power of, 294; supply 
of, 296-297. 
Management, a producing agent: 
competition, 122-124; coopera- 
tion, 124-127; form of, 112- 
127; importance of, 105-106; 
large scale, 1 1 4-1 15; monopoly 
1 17-122; productive power, 
109-112; small scale, 1 14-1 15; 
socialistic, 124-127; work of, 
106-109. 
Manipulation, 212-214. 
Manufacture, 134-138; forms of 
wealth — higher utilities, 135- 
136; importance of, 134-135; 
productive power, 136-138. 
Margin: pleasure on, 45-46; 

product on, 233-234. 
Market: desires to buy and sell, 
216-217; not a place, 215-216; 
price, 209-211; size of, 214- 
215; value, 209-211. 
Measures, system of, 153, 192. 
Mechanical properties (land's), 

78-80. 
Medium (of exchange) : see Money, 

a medium. 
Method (laborer's), 61-64. 
Mining, 128-133. 
Money, a medium, 173-186; com- 
position, 176-180; coin, 176- 
179; importance of, 173-174; 
paper, 179-186; properties of, 
174-176; system of, 153, 
192. 
Money, a standard of value, 161- 
172; features of, 161; gold, 
163-165; Greham's law, 170- 
172; importance, 161 ; medium 
also, 161-162; prices, 165-167; 
properties, 162-163; standard, 
double or single, 168-170. 
Monopoly, in distribution, 301- 
308 ; consumer, 303-305 ; capital. 



334 



INDEX 



labor, land, 305-306; legis- 
lation, 309-317; pay of, 301- 
308; profits, 301-303; rivals, 
306-307; stockholders, 307- 
308. 

Monopoly, in production, 117- 
122; kinds of, 119-122. 

Nature: in capital, 92-93; forces 
of, 2, 89-90; in production, 51- 
55, 76-78; in wants, 13-14, 16- 
18. 

Navy: aid to production, 190; 
wants for, 22. 

Nickel (coin), 176-179. 

Notes: national bank, 182; 
United States treasury, 181. 

Paper (money), 179-186; checks, 
182; drafts, 182; gold certifi- 
cates, 181 ; greenbacks, 186; let- 
ters of credit, 182 ; national bank- 
notes, 182; silver certificates, 
180-181; United States treasury 
notes, 181. 

Patents, 192-193. 

Population: climate, 65; eco- 
nomic (and social) conditions 
and ideals, 66-67 ; growth of, in 
United States, 70-73; size of, 
three classes, 67-70; vigor, 66. 

Postal system, 192. 

Price (consumer's) : demand, 35- 
36; satiation of wants, 40-41; 
value, 35-36. 

Price (market), 209-226; cost, 
217-218; cost and profits, 218- 
220; cost and loss, 221-222; 
demand, 37-39, 21 1-2 12, 222- 
226; speculation, 212-214; 
supply, 21 1-2 12, 223-226; in 
standard of value, 165- 
167. 

Producer (and consumer), 53-54, 
209-211. 

Production, agents of, 51-127; 
capital, 92-103; labor, 57-74; 



land, 76-91; management, 104- 
127; relations to each other, 

54. 

Production, aspects of, 128- 
207; agriculture, 128-133; com- 
merce, 149-160; exchange, 
149-186; manufacture, 134- 
138; mining, 128-133; money 
a medium, 173-186; money a 
standard of value, 1 61-172; 
transportation, 139-148. 

Production — consumption, 209- 
226. 

Production — distribution, 226- 
328. 

Production : individual, 5 1-52 ; 
its nature, 51-56; nature in, 
51-52, 76-78; relation to 
capital, 92; to commerce, 151- 
153; to consumption, 46-49; 
to management, 104-105; to 
transportation, 141-142; to 
welfare, 51-328; scale of, 114- 
115; social, 51-52; state in, 
188-207. 

Productivity theory (of distribU"- 
tion), 231-233. 

Profits, 218-220, 297-303. 

Railways in United States, 144- 
145; state aid to, 193; state 
operation, 204-207. 

Religion: relation to economic life, 
1-2 ; causes wealth to be a 
means to an end, 4. 

Rent, 275-285 ; efficiency of land, 
277-280; power of land, how 
estimated, 276-277; regulated 
by productive power of land, 
275-276; single tax, 283-284; 
socialism, 285 ; supply of land, 
280-283. 

Returns, increasing and decreas- 
ing, to land, 86-89 ; increasing, 
to large scale production, 115- 
117- 



INDEX 



335 



Rockefeller, 6i, 109. 

Satiation of wants, principle of, 
40-41. 

Silver: certificates, 180-181; coin, 
176-178; standard of value, 
164, 168-170. 

Single tax, 283-284. 

Situation (lands'), 82-83. 

Smith, Adam, 324. 

Social science, 1-3. 

Socialism: interest, 292; produc- 
tion, 124-127; rent, 285. 

Society: in distribution, 265-268, 
270-273, 290-292, 309-317, 
319-328; motives and acts, 5- 
6; in production, 1-2, 51-52, 
82-83, 188-207, 283-284; wants 
in individual, 14-15, 16-18; 
wants for own development, 
18-22. 

Speculation, 212-214. 

Standard of value, 161-172; 
double, 168; gold, 163-165; 
Gresham's law, 170-172; also a 
medium, 161-162 ; properties of, 
162-163; relation to prices, 
165-167; single, 169-170. 

State: a consumer, 188; control 
in economic life, 322-326; in 
distribution, 309, 319-328; 
efl5ciency of, 321-322; func- 
tions of, 189-207; toward 
individual, 8-10, 326-328. 

Statistics, 192. 

Strength (laborer's), 58-59. 

Strikes: wages, 257-258; causes 
of, 258-260; cost of, 260-261; 
ethics of, 261-262; relief from, 
263-268; success of, 258-60. 

Trades Unions, 250-270; extent 
in England and United States, 
251-252 ; importance of union to 
labor, 250-251; legal incorpo- 
ration, 266-268; methods in 
peace, 253-255 ; methods in war, 



256-258; methods of relief from 
industrial war, 264-268; pur- 
poses, 252-253; results, 268- 
270; standard of work and 
wages, 255-256; strikes, 258- 
262 ; suits for damage, 266-268. 

Transportation, 139—148; com- 
bination, 145-148; importance 
of, 139-141 ; productive power, 
143-148; railways in United 
States, 144-145; relation to 
commerce, 149-151; to con- 
sumer, 142-143; to producer, 
142-143; to production-place 
utilities, 141-142. 

Utilities: consumption of, 23-24; 
decrease in, for successive units 
of goods, 41-45 ; elementary, 
130-131; higher forni, 135-136; 
place, 141-142; time, 150- 
152. 

Value (market), 209-226; con- 
sumer and producer, 209-211; 
consumer's, 216-217; cost, 217; 
demand, 35-49; key to con- 
sumption, production, and dis- 
tribution, 228-229; relation to 
consumer's value and price, 36; 
to satiation of wants, 40-41; to 
use value, 217; value for value, 
key to distribution, 229-231. 

Wages: arbitration, 265-266; boy- 
cott, 256-257; collective bar- 
gaining, 254-256; conciliation, 
264-265 ; efficiency of labor, 
247-249 ; factory acts, 270-271 ; 
importance of, 237; limit to 
number of workers, 253-254; 
peculiarities of the labor com- 
modity, 242-245; strikes, 257- 
258; supply and demand of 
labor, 238-242; trades unions, 
250-270. 

Wants, 15-27; classes of, 18-20; 
inheritance, 15; nature causes, 



336 



INDEX 



13-14; satiation of, 13-34; 
society causes, 14-15. 

Waste, 27-28, 30-32. 

Water (lands'), 80. 

Wealth : characteristics of, 5 ; defi- 
nition of, 4 ; how to distribute, for 
consumption, 45-46; a means 
to man's welfare, 4; power to 
satiate wants, 24-25; relation 
to capital and land, 95, 97; t(5 



man, 4-5; result of effort, 
24-25. 

Weights: aid to production, 192; 
system of, 153. 

Welfare: consumption of wealth, 
13-49; consumption and pro- 
duction, 209-226; distribution 
of wealth, 227-328; production, 
51-208. 



PROBLEMS OF THE PRESENT SOUTH 

A discussion of certain of the Educational, Industrial, and Political Issues of the 

Southern States 

By EDGAR GARDNER flURPHY 

Secretary of the Southern Education Board 

Cloth 121110 $1.50 net 



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— The Philadelphia Telegraph. 

" Mr. Murphy is preeminently qualified to speak of the South and for the 
South. His discussion is candid, sympathetic, and Christian." — The Outlook. 



THE MACMILLAN COMPANY 

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FROM THE COTTON FIELD 
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A study of the industrial transition in North Carolina 

By HOLLAND THOMPSON 

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Cloth 12mo $1.50 net 



The book describes the evolution of the factory operatives of the South, 
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The author has lived the greater part of his life in the sections de- 
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